|Market Insights in Two Minutes – Passive investing has taken the investing world by storm over the last 10+ years…and for good reason. Mountains of academic evidence support the idea that controlling costs is one of the best things an investor can do to improve overall investment results. Low-cost index investing is here to stay, but has the pendulum swung too far? |
Since the Great Financial Crisis (GFC), the Federal Reserve has perpetuated a somewhat unusual environment. Emergency level monetary policy (Fed Funds Rate at 0%) for well over a decade made fundamentals and valuations matter less. With so much liquidity sloshing around financial markets, a rising tide lifted all boats…even if many of those boats had holes in them.
2022 has looked quite different. The Federal Reserve made a hard pivot relative to their intentions for monetary policy, interest rates have risen, and stocks that were previously buoyed by liquidity-fueled exuberance have seen the rug pulled out from under them. As a result, active managers whose job is to identify fundamentally sound businesses with realistic growth prospects have provided their investors with better returns. Year-to-date 58% of large-cap core active managers have outperformed the S&P 500. This is the first time more than 50% of active managers have beat the S&P 500 since…you guessed it – before to the liquidity spigot was turned on after the GFC. Are we witnessing a resurgence of active manager performance? Only time will tell, but we think it is worth acknowledging the potential shift.
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