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.
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
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.
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