For Natixis’ Alex Piré, there are many benefits of working with actively managed portfolios, saying there are many factors to consider when dealing with market volatility.
“What’s very interesting in actively managing a portfolio is the ability to see how quickly the market can move and turn,” said Piré, Head of Client Portfolio Management for Seeyond at Natixis Investment Managers. “Investors in a portfolio constructed at the beginning of the year, who held onto it over the summer, essentially had a portfolio that came under significant harm, with an inability to move away.”
That’s the issue investors end up finding with a possibly volatile product that is passively implemented, said Piré, who added a lot of products were balanced before they started experiencing recent volatility.
This means investors are stuck with the portfolio constructed at the last rebalance until the next in the fall. Piré said investors should consider products closest to its investment objective, but products aren’t always close to the said objective.
Track Better With Active Management
Piré explains how, in this case, minimum volatility is a crucial factor in portfolios. That’s where active implementation enables them to continue tracking it. This allows for an effective reconfiguration of the portfolio.
This all answers the question of why active management makes more sense than merely buying a cost-efficient, passive product.
“If you’re looking for a product that is going to deliver the expected outcome, it’s important to understand the construction methodology, and the ability of that ETF to get as close to that objective investment as possible, at any given point in time,” Piré notes.
Related: Strengthening Your Portfolio’s Core with Multifactor ETFs
It’s not about merely investing in a product that will deliver on its objective a couple of times a year. The investment in a product should be able to provide when you need it most. Namely, at any given point in time when volatility spikes. That’s the critical argument for active management.
“When you start thinking about much more active types of strategies, or much more dynamic types of factors, and so forth, that’s where I think active management is almost necessary in order to implement those strategies effectively, and prevent and balance the potential for significant churning, training, capital gains, etc.”
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