Passively managed funds may garner half of the U.S. equity fund market share by the end of 2019. Despite the growing popularity of passive funds, many financial advisors still prefer active management strategies, particularly due to the advantages it can offer their high net worth and retired clients. ETF Report recently spoke with Ashfield Capital Partners’ Chief Executive Officer Peter Johnson about the advantages of active strategies over passive ETFs.
The primary reason financial advisors may favor an active strategy over a passive one comes back to client needs. While ETFs have daily transparency, Johnson, whose firm prefers picking growth-oriented stocks over a market cycle to outperform benchmarks, says their high net worth clients like knowing what they’re holding and the specific reason why.
Furthermore, he says an active strategy allows more control over the risk/reward characteristics of a portfolio, giving Ashfield the ability to customize portfolios unique to client’s goals and objectives. This is especially favorable for clients that aim for socially responsible investments.
“Clients like to know they don’t own a tobacco stock, or that they own environmentally [friendly] stocks if they have an emphasis in their portfolio around causes and beliefs they have,” explains Johnson.
Another benefit of utilizing active strategies, according to Johnson, is their ability to take advantage of market dislocations or overreaction to near-term trends in a manner that passive ETFs cannot. He says the amount of capital that is going into passive investing is actually “creating some opportunities for arbitrage,” citing both retail stocks and healthcare as examples.
“There’ve been opportunities to own shares in businesses that are going to perform well in the long term, but in the near term, they’re undervalued, in our estimation.”
Read the entire article in ETF Report’s July 2019 issue or click here.
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