One of the most elusive combinations in investing is robust upside capture coupled with adequate downside protection.
Investors have had to adapt to this new lower-for-longer rate environment by turning to cash, structured products, and gold as safe-haven plays. On the other hand, investors have also become more aggressive, raised stock allocations, chased momentum technology winners, turned to speculative-grade bonds, and bought speculative bets like crypto in search of higher returns.
However, recent equity market bullishness doesn’t erase the need for downside protection. Active management can be the best avenue for investors seeking that buffer.
“The majority of financial advisors are betting on active management over passive to reap rewards this year, according to a PGIM survey, ‘On the Minds of Advisors’,” reports Karen Demasters for Financial Advisor. “The majority (61%) of advisors feel actively managed investment products are better suited than passive to protect against any market declines that occur this year. Only 13% said passively managed accounts were better to protect against any downturns.”
Investors need some kind of hedge that addresses left tail risks like market crisis, Covid-19, large loss, and a long recovery process, while simultaneously tackling right tail risks like under-allocation to equities and missing out on potential returns.
“Whether they support active or passive management, 79% of advisors said they are optimistic about equities this year, although their forecasts varied by type of advisor. RIAs were slightly more pessimistic than broker-dealers, with only 64% indicating they had a positive outlook for equities in 2021, versus 83% of broker-dealers in the national, regional, independent and bank channels, according to the survey,” adds Financial Advisor.
For more on active strategies, visit our Active ETF Channel.