Passive funds outperformed active funds right before the global pandemic hit the world. Those passive funds tracked market indices in order to allow those funds to reap maximum profit. However, everything changed with the coronavirus crisis of 2019. Performance of all the assets, high risk, and low risk, were boosted with low-interest rates and quantitative policies that topped onto the already slow world economic growth.
What Are Active Funds?
Active funds are one of the investment varieties that involves a vital role of an active fund manager. Your active fund manager has the job of brainstorming and picking up the most profitable investment options for you that will reap you high gains over a long period of time. The intention of choosing any particular stock is to outperform the fund’s stated index or benchmark.
Funds that are actively managed generally involve a high fee because the active fund manager, along with the researchers and analysts, conducts a thorough analysis to understand which stocks to invest in. They also actively buy, sell and hold the stocks to give you the highest possible returns. The fund manager is also responsible for taking all important decisions about the active fund and how they can invest the fund’s capital to maximize the trading stock’s profit potential.
What Happened After The Quantitative Easing Policy Was Implemented During The Pandemic?
The quantitative easing led to the bond prices becoming more expensive and minimized returns, which people earned from cash deposits. This encouraged investors and traders to witness an inclination towards the riskier assets like real estate, property, and equities, that had lower volatility comparatively.
The interest rates saw a historic low value that led to an asset price recovery in 2020. However, things are still uncertain, with the virus prevailing around almost all countries in the world. Its impact has already hit several sectors adversely, in different ways, leading to gigantic losses. This condition has proven to be the right platform for active investment and management, taking the upper hand for investors across borders.
John Husselbee, the Liontrust head, mentions that every investor should consider both active and passive investment assets in their portfolio at all times, especially when investing for the long run. He also sheds some light on the active vs. passive argument stating that investors investing in active funds should be aware that they need to have all the patience in the world and withstand lengthy time frames of underperformance to witness wealth generation. However, this is central to the multi-asset approach that every investor must follow.
When interest rates are already at the lowest and the markets are performing well, it is right to diversify investments and invest in active funds. Such funds are chosen with a performance delivery aim of beating the fund’s benchmark or index. As the name suggests, active funds will always require an active role of the fund managers or investors in order to earn high results, but these funds take their own time to reach that level, and when they do, it is a full-blown gainful investment.
A Vanguard based study that talked about over 2500 actively managed funds in the United States of America over 25 years as of 2019, it funds all outperforming assets witnessing sharp falls as per their stated benchmarks and competitors or peers, especially over 1, 3, and 5-year periods in the market. Eighty percent of these outperforming assets or funds also had a five-year bottom quartile spell with an expectation of a continuous fall in the funds lasting a minimum of two years each decade and worst-case scenario being a 20 percent fall altogether.
Is Now A Good Time To Include Active Funds In Your Portfolio?
The answer is a definite yes. With the global pandemic, the markets have been volatile for the past couple of months. It is important that you assign a professional who is on the lookout for your fund prices so that as soon as the prices increase or decrease in your favour.
Immediate action is taken to maximize your gains from the market. A few days back, as China’s real estate market crashed, so did the stock exchanges around the world. Nobody knew what would happen next if the markets would crash further or not. However, the markets worldwide are comparatively stable, and some stocks are even witnessing a rush high. In similar situations, an active fund manager plays an essential role as they keep a close eye on the market for you to trade with the best stocks at the best time with the best price. So, if there can ever be the time to include active funds in your portfolio, it is NOW!
If you’d like to speak with someone who can help you with active funds, request and introduction now and we will be able to put you in touch with a specialist today.
