Investing in a world of instant reactions

Anthony Day
Financial Research Analyst

The phone in our pocket is as powerful as the computers on our desk. In a world where the news cycle is as short as Anthony Scaramucci’s tenure at the White House, one bad headline can cause a company’s stock to drop 3% any given day. What has resulted from this quick twitch, hurry to sell/buy, 140 characters at a time flood of information available to us 24/7, is a land of opportunities for long term investors to remain steady on their path towards their financial goals.

More than ever, being confident in your portfolio’s allocation as well as putting the blinders on to distract from a news cycle that craves volatility will lead to long term results you will be happy with. In our industry, there has been a lot of buzz around passive investing, a vehicle in which you invest in a mutual fund/ETF that tracks a benchmark and reduces your costs. In certain circumstances, passive investing can add value to your portfolio, especially in bull market conditions where active managers will have a hard time beating their benchmarks. On the other hand, you can make the argument that in today’s world of instant reactions, having an active manager who can allocate capital to specific attractive areas of the market currently undervalued can add substantial value to your portfolio.

In our model portfolios we chose active managers in certain asset classes and countries that we believe will lead to excess returns over their benchmark. For example, we are very bullish about the growth outlook for international equities and through our due diligence we picked fund managers that we feel will add the most value to the portfolio. Specifically, an active manager in the emerging market equity space will focus on developing countries such as China, South Korea, and Brazil. Their management team is likely spread throughout the international region meeting with diplomats, CEOs, and policy makers to make sure they have all the essential information to construct their portfolio. For example, an actively managed emerging market equity fund is up 41.37% year to date, as of November 1st. During the same time, a passively managed ETF is up 32.69%.

So, the next time, or every time, you turn on a cable news network and see the BREAKING NEWS alert, remain confident that your portfolio is being actively managed. Ignore the short-term blips on the radar and remain focused on your long-term goals.

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