The environment of high equity valuations and historic inflation is leaving money managers hopeful for 2022 but ultimately divided on where markets will go. Actively managed funds can be a defensive play for advisors and investors in times of uncertainty due to their ability to respond to constantly changing market conditions as they happen.
With markets dipping last week after the Fed minutes for December indicated even further tightening by the central bank, it’s a time of market volatility as investors pivot to more defensive strategies and reconsider their allocations. Equities outperformed once again in 2021 with the S&P up 28.7% for the year over the 18.4% growth in 2020, reports Pensions & Investments.
That outperformance has some money managers hopeful for 2022. “The economic state of the money management industry in 2021 was as strong as I’ve ever seen it in terms of profitability. In aggregate, it was a fantastic environment for money management firms. Many managers, especially alternative firms, are going into 2022 on a very strong footing,” said Kevin Quirk, a principal at Casey Quirk, a practice of Deloitte Consulting LLP.
Other money managers are less certain but think that 2022 will be mostly positive overall, but are also keeping an eye to inflation. “Our central case is that 2022 will be an average, positive year. Nothing in the market is too worrying. Equities likely will go up to provide some genuine growth and inflation probably will go down,” said Christopher Redmond, global head of manager research for Willis Towers Watson PLC.
A percentage of money managers are cautious regarding performance in 2022, seeing a lot of challenges that markets and the economy will have to overcome in the year. "We had such strong tailwinds from government stimulus in 2021. In 2022, clearly this may change as the Fed’s balance sheet will be shrinking,” and globally central banks work to raise rates to combat inflation, said George Walker, chairman and CEO of Neuberger Berman Group LLC.
“This will create choppy markets,” Walker explained.
Actively managed funds have the chance to either enhance returns or mitigate losses, depending on market performance. With so much uncertainty and the financial industry itself unsure as to the prospects for the year, active management can take much of the guesswork out of positioning and can help enhance portfolios in troubled times.
Active management firm T. Rowe Price currently offers eight actively managed ETFs with a variety of strategies for investors to align their risk exposures and investment goals. These include the T. Rowe Price Dividend Growth ETF (TDVG), the T. Rowe Price Ultra Short-Term Bond ETF (TBUX), and the T. Rowe Price Total Return ETF (TOTR).
The firm brings a bevy of experience and research to its products, with portfolio managers averaging over 20 years in investing each, as well as over 400 investment professionals dedicated to researching companies within ETFs.
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