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Actively preparing for a rainy day
11/24/2017 9:01:27 PM
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By Fund Library News Wire  | Thursday, October 19, 2017


 

  

By Mark Brisley, Managing Director and Head of Dynamic Funds

“Preparing for a rainy day” may be the best way to describe the direction of the U.S. stock market with the three most recognized indexes – the Dow Jones Industrial Average, the S&P 500 Composite, and the Nasdaq Composite – having notched solid, double-digit gains to the end of August. Taking a longer view, the current U.S. equity bull market has boosted share prices by about 260% in a little over eight years to the middle of the third-quarter 2017. This makes it one of the longer and stronger uptrends in post-war history. So it’s not surprising that this cycle’s duration – in concert with depressed volatility readings, concerns about narrowing market participation, monetary tightening and stretched valuations – has some investors reviewing their passive U.S. equity ETF allocation.

Performance risks

While the likelihood of a correction has risen, none of the usual catalysts to end the equity market’s uptrend are on the horizon. The biggest risks – economic and earnings recessions – do not, at this stage, appear to be in the cards. Nevertheless, investors looking to dial down benchmark valuation risk in passive U.S. equity ETFs may want to consider active management. Active management has proven to be advantageous in depressed and slow-moving markets as the following chart shows. In fact, U.S. active equity managers handily outpaced S&P 500 compound annual growth rates over the course of two decades – the 1970s and 2000s.

When it comes to active management alternatives, you may want to ask your advisor if a switch to an active ETF strategy makes sense for your investment portfolio. Active ETFs offer all the benefits of traditional ETFs – they’re low-cost, highly liquid, and can be bought and sold throughout the day in real-time at market-determined prices.

What sets active ETFs apart is their reliance on professional money managers who make choices from available investments, monitor their performance, and buy and sell holdings to try to achieve the desired return on the fund. With a professional manager at the helm, you may never be caught standing still when markets move. And with the opportunity to hold cash, the manager has the flexibility to step back from the market altogether and wait for mispriced opportunities.

In addition to considering active ETFs – Dynamic has a suite of eight – another option is to embrace or re-embrace traditional equity mutual funds. The reasoning runs parallel to that of active ETFs. A professional manager may add higher performance potential by owning a thoroughly researched, highly selective basket of stocks rather than the entire market.

Trading opportunities may also arise that allow the manager to upgrade the portfolio with potentially stronger performers at lower valuations. Whether you turn to a traditional mutual fund or an ETF with a professional manager, an active approach to investment decision-making may play an increasingly important role in the success of a diversified portfolio program over the next several years.

As with all your investment decisions, it makes sense to consult with your advisor. He or she knows you and your individual circumstances best, which puts them in a good position to know what may work for you.

At Dynamic, we offer a range of U.S. equity mutual funds with various investment styles and objectives. We also have two active ETFs that are singularly exposed to U.S. equities: Dynamic iShares Active U.S. Dividend ETF (TSX: DXU) and Dynamic iShares Active U.S. Mid-Cap ETF (TSX: DXZ). Two of our other active ETFs have global mandates – Dynamic iShares Active Global Dividend ETF (TSX: DXG) and Dynamic iShares Active Global Financial Services ETF (TSX: DXF) – which allow them to invest south of the border. Talk to your advisor to find out more about Dynamic U.S. equity mutual funds and Dynamic iShares Active ETFs.

Mark Brisley is Managing Director and Head of Dynamic Funds, one of Canada’s largest asset management companies. With over 20 years of industry experience, Mark is responsible for the firm’s strategic execution, day-to-day operations, and business development.

Notes and Disclaimer

© 2017 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited. Used with permission.

Important information

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund and exchange traded funds (ETF) investments. Please read the prospectus before investing. Mutual funds and ETFs are not guaranteed, their values change frequently and past performance may not be repeated. Dynamic iShares® Active ETFs are managed by BlackRock Asset Management Canada Limited and invest in selected mutual funds managed by 1832 Asset Management L.P. Dynamic Funds® is a registered trademark of its owner, used under license and a division of 1832 Asset Management L.P. iShares and BlackRock are registered trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. Used with permission. ™Trademark of its owner, used under license. The information provided is not intended to be investment advice for specific investments advice tailored to their needs.

Views expressed regarding a particular company, security, industry, or market sector should not be considered an indication of trading intent of any funds managed by 1832 Asset Management L.P. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell.

 
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