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The Case for Active Management in a Volatile Market
By Brandon Thomas
August 30, 2011

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Healthcare, with its strong demographic tailwind, remains attractive, while technology companies don’t appear to be going anywhere but up. Tech names have shown themselves to be less economically sensitive than other sectors as a result of their cash-heavy balance sheets. In addition, tech companies are low on debt, by and large, which should shield them from the interest-rate swings that appear to be on the horizon. While it’s true that tech stocks tend to be low dividend payers and are almost always vulnerable to new, disruptive technologies, they are also highly liquid and boast tremendous growth capabilities.

Not limited to equities

Active management also plays a crucial role in fixed income. It is in periods of market dislocation such as the present that active managers demonstrate their worth by deciding how to allocate between Treasury and corporate bonds, between investment grade and high yield and among short-, intermediate- and long-term maturities. Many individual investors naturally seek the safety of Treasury bonds in times like this. But with the yield on the 10-year Treasury note near historic lows and not far above that of cash, astute active managers can see through the froth to identify undervalued segments with higher yields and very little credit risk. And active fixed-income managers aren’t limited only to macro decisions. Through credit analysis, they are also able to decide which individual securities are most attractive.

Active managers can place investors in winning stocks or attractive bonds, but in a stall-speed economy, returns will take their time to appear. Patience is essential. As the saying goes, good things come to those who wait.


Brandon Thomas is Chief Investment Officer for Envestnet|PMC, a provider of consulting and analytical investment solutions to financial advisors and their clients.

All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. This article is not intended as and should not be used to provide investment advice and is not an offer to sell a security or a solicitation of an offer, or a recommendation, to buy a security. Past performance is not a guarantee of future results.

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