{"id":8609,"date":"2020-04-28T21:27:04","date_gmt":"2020-04-28T21:27:04","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=8609"},"modified":"2022-02-26T13:06:42","modified_gmt":"2022-02-26T13:06:42","slug":"why-active-management-is-key-right-now","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/why-active-management-is-key-right-now\/","title":{"rendered":"Why Active Management is Key Right Now"},"content":{"rendered":"\n<p>During the S&amp;P 500\u2019s -34% plunge followed by its sharp \u201cv-shaped\u201d\nrally, it became apparent to me that almost every sector of the US economy had\nvarying levels of exposure to this crisis. We have never seen an <em>induced<\/em> recession in the name of public health\nlike we\u2019re seeing now, with government-mandated shutdowns and social distancing\nrestrictions. Not all industries are being impacted equally by this economic\nreality \u2013 some have been affected badly, others are weathering the storm, and\nsome are actually <em>thriving.<\/em><\/p>\n\n\n\n<p>You can see the different levels of impact in the Q1\nperformance numbers. The S&amp;P 500 finished down -19.6% for the quarter, but\nan investor\u2019s participation in the downside had everything to do with exposure:\nEnergy (-51.37%), Financials (-28.87%), and Industrials (-25.47%) got clobbered on the way down, while Technology\n(-11.77%), Health Care (-12.64%), and Utilities (-14.11%) outperformed on a\nrelative basis.<sup>1<\/sup> A handful of strong technology companies even\nfinished the quarter in positive territory. If an investor had equally weighted\nall S&amp;P 500 sectors in their investment portfolio from January 1 to March\n31, they would have been down -30.08% versus the S&amp;P 500\u2019s actual -19.6%\n(cap-weighted) finish.<sup>2<\/sup> Allocation decisions matter.<\/p>\n\n\n\n<p>_________________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_4_27&amp;content=stock_market_outlook_report\">What Industries and Sectors Should You Focus On?<\/a><\/strong><\/p>\n\n\n\n<p>Don\u2019t make your investment decision based on fear, instead\nfocus on the fundamentals, hard data, progress and innovation being made by\nindustries that are thriving. To help you do this, I am offering all readers\nour just-released Stock Market Outlook report. This report contains some of our\nkey forecasts to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>10 trends we are seeing in a COVID economy<\/em><\/li><li><em>How will coronavirus continue to impact the markets?<\/em><\/li><li><em>Inside unemployment rates<\/em><\/li><li><em>Is it time to buy U.S. stocks in April?\u00a0<\/em><\/li><li><em>What of US GDP growth?<\/em><\/li><li><em>U.S. returns expectations for  2020\u00a0<\/em><\/li><li><em>What produces 2020 optimism?\u00a0<\/em><\/li><li><em>And much more.\u00a0<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0<br> <a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_4_27&amp;content=stock_market_outlook_report\"><br><\/a><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_4_27&amp;content=stock_market_outlook_report\">IT&#8217;S FREE. Download the Just-Released May 2020 Stock Market Outlook<\/a><\/strong><sup>3<\/sup><\/p>\n\n\n\n<p>_________________________________________________________________________<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/chart-1024x683.png\" alt=\"\" class=\"wp-image-8610\"\/><\/figure>\n\n\n\n<p><em>Source:\nBlackRock<sup>4<\/sup><\/em><\/p>\n\n\n\n<p>A passive manager who owns the entire stock market, or\nspecific sectors via ETFs, probably has exposure across the board \u2013 owning the\ngood, the bad, and the ugly. An active manager can work to limit exposure to\nthe latter two.<\/p>\n\n\n\n<p>Long-time readers know that when it comes to growth and\nwealth building over time, I\u2019m a die-hard advocate for owning a diversified\nportfolio of equities for long stretches (20+ years) of time. But that does not\nmean just blindly owning the entire market equally, or simply allocating an\nequity portfolio perfectly in-line with the S&amp;P 500\u2019s cap-weighted\nallocations. I believe that an active manager can help to determine how much\nrelative exposure to allocate to each sector based on that sector\u2019s outlook.\nAdditionally, in my view, an active manager can go a step further and attempt\nto examine every single stock available to determine earnings potential, credit\nrisk (very important in the current environment), earnings estimate revisions\nvs. actual results, valuation, historical dividend payments, and so on. An\nactive manager can work to separate the bad and the ugly from the strong and the\ngood. <\/p>\n\n\n\n<p>At present, the \u201cApril Zacks Industry Ranks\u201d produced a\n\u201cstay-at-home\u201d macro assessment of different sectors across the economy, and\nfinds that Utilities, Communication Services, Information Technology and Health\nCare are the leaders. On the negative side, we see Materials, Industrials, and\nEnergy on a continued lag. Computer-Office equipment and software\/cloud sales\nare strong, as remote offices get set up. Continued weakness in global\nmanufacturing PMIs and WTI oil price declines will likely persist as a drag for\nEnergy, Industrials, and Materials. It is still way too early to call, but\ncurrent Zacks earnings estimates for full-year 2020 shows spots of positivity\nfrom Information Technology (+6.0% y\/y), Health Care (+4.7% y\/y), Consumer\nStaples (+2.7% y\/y), and Communications Services (+2.0% y\/y).<sup>5<\/sup> <\/p>\n\n\n\n<p>I believe size is another arena where active management can\nhelp you navigate the recession. Because of the \u2018full-stop\u2019 on economic\nactivity that characterizes the current recession, large-cap companies \u2013 which\ntend to have stronger balance sheets, better technology, established\nrelationships with banks, and more diversified sales channels \u2013 are \u2018weathering\nthe storm\u2019 better than smaller and mid-size counterparts that do not have\nsimilar financial positions. Large-cap has been outperforming small-cap and mid-cap\nacross the globe, across the growth and value (style) spectrum.<sup> 6<\/sup>\nThis setup is another area where active managers can smartly position\naccordingly. <\/p>\n\n\n\n<p>Finally, from a stock-specific standpoint, I believe active\nmanagers should be looking at credit risk on every company\u2019s balance sheet in\nthe portfolio. Reports this week showed the $350 billion Paycheck Protection\nProgram was already out of money, and though Congress is poised to add more funds,\nnot every business will benefit from bridge loans needed to keep the doors\nopen. Energy companies in particular face acute credit risk as oil prices have\nplunged. Companies with strong balance sheets and cash positions will still hurt\nfrom falling demand, but their chances of surviving are much higher \u2013 and life\nafter the crisis might mean less competition.&nbsp;\n&nbsp;<\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors<\/strong><\/p>\n\n\n\n<p>Stock market volatility continues apace and is likely to\nremain elevated for the next few months as the world fights to contain the\nCovid-19 outbreak. The economic hit will also continue as shutdowns and\nrestrictions on movement persist, with some sectors and industries feeling\nacute pain while others weather the downturn or even thrive. A passive\ninvestment approach in the current environment means owning some or many of the\ncompanies that are not likely to do well or potentially will not survive, in my\nview. An active approach to investing \u2013 like what we do here at Zacks\nInvestment Management \u2013 means taking a more analytical approach to owning\nstocks that can survive the crisis and perhaps even emerge stronger during the\nrecovery. That\u2019s why I think it\u2019s a good time to be an active manager.<\/p>\n\n\n\n<p>To provide you with some of the insight and data that we are seeing, I am offering all readers our<a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_4_27&amp;content=stock_market_outlook_report\">\u00a0<\/a><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_4_27&amp;content=stock_market_outlook_report\">Just-Released May 2020 Stock Market Outlook Report.\u00a0<\/a><\/strong><br> \u00a0<br> This Special Report is packed with newly revised predictions that can help you base your next investment move on hard data. For example, you&#8217;ll discover Zacks\u2019 view on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>10 trends we are seeing in a COVID economy<\/em><\/li><li><em>How will coronavirus continue to impact the markets?<\/em><\/li><li><em>Inside unemployment rates<\/em><\/li><li><em>Is it time to buy U.S. stocks in April?\u00a0<\/em><\/li><li><em>What of US GDP growth?<\/em><\/li><li><em>U.S. returns expectations for  2020\u00a0<\/em><\/li><li><em>What produces 2020 optimism?\u00a0<\/em><\/li><li><em>And much more.\u00a0<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<sup>7<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The case for active management in this crisis: Some industries and sectors struggle, others thrive.<\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-8609","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8609","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8609"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8609\/revisions"}],"predecessor-version":[{"id":10613,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8609\/revisions\/10613"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8609"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8609"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8609"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}