Is now the time for active investing? With the Fed dropping a hefty 50 basis point cut, investors may be taking a fresh look at a very concentrated stock market. While that concentration has helped lift the S&P 500 return 19.79% YTD, per YCharts, it poses its own risks. American Century Investments Vice President and Head of Portfolio Solutions Rene Casis and Parametric Portfolio Associates portfolio manager Alex Zweber joined VettaFi Senior Industry Analyst Kirsten Chang during Thursday’s Q4 Equity Symposium to discuss.
See more: Emerging Markets ETF AVEM Sees Flows Accelerate Nearing 5th Birthday
The duo shared their perspectives on Q4 and active during a segment titled, “Advantages Over Passive Approaches: Active’s Time to Shine.” The discussion examined the overall outlook for the rest of the year and some potential benefits offered by active investing.
For Casis, the rest of the year inspires a “cautiously optimistic” outlook. That being said, however, he and his colleagues are looking at more than just jobs data to assess the economy’s path.
“The jobs market is typically the last segment to show economic slowdowns in the cycle. We believe it’s best to position more defensively in terms of asset allocation,” Casis said, emphasizing that he and his team are looking for signs of slowdown in housing and manufacturing, as well.
The 50 bps rate cut may, Casis added, point to potential opportunities in smaller firms.
“We think that smaller capitalization companies … may be an opportunity as lower cost of borrowing tends to benefit smaller cap companies more,” he said.
For both Casis and Zweber, however, a key focus remains managing the high degree of concentration in the market.
“We’re seeing concentration at historic levels,” Zweber said. “The top 10 names in the index currently sit at around 35% in the S&P 500.”
“A lot of these names are concentrated in the same sectors and sub sectors and risk factors,” he added.
Concentration Risk & Active Investing
What, then, might be some options to address that concentration risk? Active investing presents a powerful tool therein. Casis emphasized that active investing can offer some real diversification and flexibility to adjust to potential concentration risk.
“I think the case for active management is that … as we’re seeing in the large-cap space, active management can continue to add value and arguably more diversification than what we’re seeing and risk management than what we’re seeing currently today,” he explained.
Casis and American Century Investments manage the American Century U.S. Quality Growth ETF (QGRO ), which could present an option for a potential slowdown. QGRO charges a 29 bps fee to take an “active index” approach, per Casis. The strategy screens for growth, quality, and income using measures like sales, cash flow, and more. Combining high-growth stocks and more stable firms, it has returned 27.27% over one year, per American Century Investments data.
Zweber, meanwhile, managers the Parametric Equity Premium Income ETF (PAPI ) which takes an active approach for a 29 bps fee. The strategy aims to offer income with its approach, holding dividend-paying firms and using a laddered, naked call writing strategy on the S&P 500.
For more news, information, and analysis, visit the Core Strategies Channel.
VettaFi LLC (“VettaFi”) is the index provider for QGRO, for which it receives an index licensing fee. However, QGRO is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of QGRO.
