The days of the active managers may be upon us.
Active managers have been lambasted recently because they have not been able to outperform equity benchmarks, but market conditions might be turning to their favor.
Central banks have been pulling back fiscal stimulus and stocks continue to perform well regardless of economic conditions, creating the perfect conditions for active managers.
Return To Normalcy
Those factors are contributing to a “return to normalcy” since the crash, said Ryan Detrick of LPL Financial. “Fundamentals, hopefully, are going to start driving the market,” he said.
Active managers struggled during the recovery because of several factors, including the fiscal stimulus’ pressure in driving up the price of stocks, lower interest rates, increased federal regulation and low volatility.
“It was really tough for active managers to use their skill set and to find the best fundamentally driven companies to succeed and outperform the market,” said Detrick.
Active managers were not able to deliver strong returns during the period of slow-growth following the crash. But now the economy is heating up.
“There are some signs that the economy is starting to come out of the doldrums it was in in 2014, ’15 and ’16,” Detrick said.
With two interest rate increases already in place and two more projected by year’s end, analysts say this could be a sign of good things to come.
“The market is really taking it in stride,” Detrick said.
On The Horizon
LPL estimated that the next five to six years will be a good period for active managers.
“We’ve had a 9-year bull market, and we’re not saying there’s a bear market coming,” said Detrick, “but some of the best times for active managers, as the data suggests to us, are late in the economic cycle or times that are outright in bear markets.”
Estimates and projections could change, but Detrick remains optimistic about the next few years for active managers.
“This is the second-longest economic growth since World War II, so, clearly, we have at least another year or two of economic growth,” Detrick said, “but we think there could be a lot more volatility later in the cycle, which could be a positive for active managers.”