Clearbrook LLC CIO Timothy NG and Bessemer Trust analyst Joe Tanious appeared on CNBC’s “Power Lunch” on Monday afternoon, to talk about why investors should start moving money from index funds, mutual funds and exchange-traded funds (ETFs) into active management.
More than $900 billion has gone into index funds, including ETFs, since 2009 as investors wonder why they should risk their money on active management when it doesn’t seem to work, noted CNBC’s Tyler Mathisen.
The trend over the past several years makes since, considering 85% of active managers haven’t been able to beat the Indices, NG noted.
However, a change has come in the past six weeks as active management has finally been able to outperform the Indices by a “substantial” 400 to 500 basis points, NG said. “First clues we’ve seen that there’s a breakdown in correlations across industry groups, that finally we’re seeing the benefits of active management,” he explained.
Active management becomes even more attractive when you consider that the Federal Reserve (Fed) may raise interest rates by the end of the year, which will benefit investments with yields, NG said.
In addition, volatility is expected to rise, which would also benefit active management, Tanious added.
In this type of environment, investors should move toward quality companies rather than focusing on whole sectors and toward alpha rather than beta, Tanious said. Consumer-related stocks would be smart investments considering how healthy the consumer has been lately, he noted.