Active management can pay off in volatile markets

AActive management can pay off in times of volatility, according to Jenny Johnson, President and CEO of Franklin Templeton. Speaking to Leslie Picker during CNBC’s “Delivering Alpha” newsletter, Johnson said that while it’s “a tough time” for investing amid the war in Ukraine and rising interest rates, active management can add value.

“There is no doubt, it is a difficult period. And I would say the good news is that in times of high volatility, active management pays off,” Johnson said. “So it’s times like these that you find value.”

The Franklin Templeton CEO added that while “flows are down across the board,” she “has seen assets outperform more.”

This echoes what Johnson told Exchange: An ETF Experience last month, telling Yahoo Finance anchor Julie Hyman that “in this environment of rising rates, inflation, supply chain issues and demand, potentially stagflation, that’s where we need to be active.” Johnson added in the Exchange interview that the current — and future — economic climate calls for active management, making this a real opportunity for active funds to earn their fees.

Active US equity funds have indeed fared better so far in 2022 than they have in previous years. Morningstar Ratings Director Jeffrey Ptak recently wrote that approximately “60% of these funds outperformed their YTD style-specific benchmark through 4/30/22,” adding that that’s because they “did well during both withdrawal periods” of January 1 to March 14 and March 30 to April 30.

Amid the many headwinds facing the sector, investors continued to invest in active ETFs at a near-record pace in the first quarter. Assets under management in active ETFs reached $306.1 billion as of March 31, up $103 billion year-over-year, according to FactSet.

“The ability of active managers to sell stocks of disadvantaged companies and refocus the portfolio during volatile market conditions is a key reason investors are willing to pay higher fees,” said Todd Rosenbluth, head of research at ETF Trends. “The start of 2022 was the perfect time for active managers to shine.”

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