active management

Under Pressure

Under Pressure

Earlier this week we lost a music icon. While I was not a big fan of David Bowie, there are a few songs of his that I enjoy. My favorite is “Under Pressure” which he co-wrote with the band Queen in 1981. The title is very appropriate for what we

The January Effect

by Jason Norris, CFA Executive Vice President of Research

The January Effect

Historically, investors have cited the so-called January indicator in an attempt to forecast future returns. If the S&P 500 is positive in the first five trading days of January, then 75 percent of the time, stocks have enjoyed a positive return for that entire calendar year. With stocks seeking a positive gain the first five days of 2015, we can be hopeful for more of the same come December. With stocks delivering gains two-thirds of the time anyway, this looks to be only modestly significant. While we don't make investment calls based on calendar events and historically superstitions, we at least recognize when the odds are in our favor. As a footnote, the S&P 500 was down the first five days in 2014, and yet we ended the year with positive gains.

Don’t Chase the Hot Dot

Jack Bogle is on cloud nine. The biggest proponent of passive investment management, and founder of The Vanguard Group, saw over $200 billion of inflows from investors in 2014 as frustration increased with active management. In 2014, depending on asset class, 75-90 percent of active equity managers trailed their benchmark. While this lack of alpha is a concern, it is not the most important contribution to an investor’s overall return. The biggest factor is the allocation between stocks and bonds, and then which equities you favor (large cap, small cap, international, ETF, etc.) The U.S. large cap space was the best game in 2014, and the more exposure the better for investors. Finally, there will be periods where passive does better than active; however, over longer periods of time, active is superior. Over the past five years, 50 percent of institutional active managers have outperformed. Over the past 10 years, 75 percent of active managers have outperformed.* The key for investors is patience. Chasing last year’s performance has never been the best policy and taking a long-term view is the best approach.

Our Takeaways for the Week: 

  • 2015 should be a positive year for stocks, though it likely will be volatile
  • Over the long-term, active management beats passive

*Source: Mentor