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Now Is the Time for Active Management in U.S. Equities: Amundi
February 17, 2023
“We believe active equity managers are positioned to outperform passive approaches over the next few years.”
That’s the takeaway of a research note from French asset manager Amundi. The authors cited three main reasons why: active’s track record in down markets, passive’s reliance on tech heavyweights, and a rotation into value stocks.
Active Outperforms in Down Markets
Amundi crunched the numbers and found that overall, active managers deliver superior returns to their passive counterparts during market downturns (defined by Amundi as when stocks fall 10% or more).
Looking at all active managers as measured by the Morningstar Large Blend category, active managers outperformed the S&P 500 by a small margin, in five of the nine downturns since 2000.
Meanwhile, active large blend managers in the top quartile outperformed on average by wide margins — in all nine downturn periods. The report says it makes a “strong case that skilled active large blend managers can potentially outperform the index in down markets.”
Market Concentration Is Lessening
Amundi says the lessening dominance of big tech in the market may also create opportunity for active managers. The firm believes that big tech’s dominance is waning due to regulatory risks, execution risks, and challenges that companies like Amazon and Microsoft have in sustaining earnings growth to justify valuations.
Given that, Amundi is hinting that the S&P 500 index concentration may be reaching a tipping point, with the report saying the last time S&P 500 Index concentration peaked was the dot com bubble of 2000-2002. According to Strategas Data, the percentage of active large blend managers that outperformed the benchmark was 60% in those years.
Amundi thinks the market over the next few years may follow a similar pattern.
Value Rotation
Along the lines of the movement away from big tech and growth stocks, Amundi believes that there is more room to run for value stocks. The report cites inflation as a key driver in the case for value, as there been a “strong historical link between changes in commodity prices and the outperformance of value stocks relative to growth stocks.” In addition, the report cites continued concerns over the valuations of growth stocks.
The report concludes by saying, “In an increasingly favorable environment for active managers, and at a time when there is increasing pressure on investors to invest responsibly, we believe investors should consider allocating to active managers with proven track records.