A Closer Look at Active Managers

If you were an investor in the early 2000s, you would probably have been wise to invest in Netflix Inc. rather than Blockbuster Inc., a movie rental company. Even then, it was quite clear that movie rentals were a dying business. However, an index fund cannot make such a distinction. It uses a formula that is based on the current size of stock.

According to Tim Armour, chairman of Capital Group,  active manager is quite different. He or she searches for the value that will help an investor get a higher return than the market average in good time. For instance, the current economic times make it hard for companies to make meaningful profits. However, there are still companies that are doing tremendously well. Additionally, Tim Armour states, the current volatility in oil prices represents risks and opportunities for investors.

Tim Armour writes in the Wall Street Journal, that an excellent manager can be recognized by his ability to conduct ample amounts of research. The research leads to an insightful view of the company’s future. One example is the development of innovative therapy techniques and the aging baby boomers. An active manager would meet with not only the company’s representative but also the competitors, doctors, distributors, and academics. Additionally, a financial analysis would be needed to understand the risk exposure levels.

Click here to learn more about Tim Armour.

According to a recent survey, 81% of baby boomers feel that protection from market downturns is an important aspect of any management strategy. However, very few of them were aware that index funds expose them fully to any downturns in the stock market.

However, things are not all rosy in actively managed funds. There are many of them, which charge a high fee or perform poorly. The result is that most investors give up and settle for index funds. However, with careful research, an investor can find the right one.

A recent study by Capital Group shows that active managers who invest huge amounts of their money and charge low fees beat their benchmarks almost 90% of the time. The figure is calculated over a ten-year rolling period. That would mean hundreds of thousands more for investors over a 20-year period.

Related: Capital Group, Samsung Asset Management form strategic partnership in Korea

Generation X should seriously consider this type of investment. They came of age during the housing crisis, the dot.com burst, stagnant wage levels, and the financial crisis. Most of them fear they will never make enough for retirement. As a result, investing in an active fund that performs better than the market would greatly help them.

With the right financial advisor, finding a good active manager can be made easier. When supplemented with enough research, it is quite possible to find an active manager who can earn their up keep. It will help to ensure a flawless retirement.

Related: Capital Group Parent Names Armour Chairman, Replacing Rothenberg