There is a common theme in Wall Street outlooks that 2024 isn’t a time to be on autopilot—investors need to pick spots in the market judiciously.
That could bring more attention to active managers this year.
Strategists are painting a challenging time ahead for markets. Two wars continue, China is trying to revive its economy, and debate persists about the Federal Reserve’s next moves on interest rates. There is also the question of whether the U.S. is in for a recession.
Jean Boivin, head of
BlackRock
Investment Institute, said in a recent note investors need to steer portfolio outcomes more deliberately, a reason BlackRock favors active strategies for both bonds and equities next year.
Over the past decade, passive strategies have gained favor, accounting for 49% of all assets as of the end of the second quarter of this year. That compares with 25% 10 years ago, according to research and consulting firm Cerulli Associates.
While savvy stockpickers often pride themselves on homing in on company fundamentals, active managers can add value by dialing down risk, says Russel Kinnel, director of ratings and manager research at
Morningstar.
To find active funds to consider, Barron’s searched for U.S. large-cap managers with the highest active share—a measure Morningstar uses to gauge how different a fund is from its benchmark.
We started with a list of funds whose portfolios were at least 85%, different than their benchmarks. Of course, being different doesn’t necessarily mean strong performance, so we winnowed down the group to find those with a strong record and that have beaten two-thirds of their peers or more in both the three- and five-year periods.
We found nine that were open to new investors and had assets of at least $500 million or more. The list turned up some well-known managers and a couple under-the-radar funds. One downside of active funds—including this list—is they can be pricey.
Two funds that made the cut are the concentrated $5.6 billion
Oakmark Select
and the larger $18 billion
Oakmark Investor.
Both are led by value veteran Bill Nygren, who has built a record of savvy stock picks.
Another candidate is the
Invesco Comstock Select Fund,
which Kinnel highlighted as the kind that tends to dial down risk during volatile times, contributing to its strong long-term risk adjusted performance.
The Comstock fund tends to hold smaller and cheaper companies than peers, according to Morningstar. Its average annual return of almost 11% over the past five years beat 85% of its large value peers, but its fees are also high.
The
Smead Value Fund
also has a strong risk-adjusted return and its nearly 14% average annual return over the last three years beat 99% of its peers, according to Morningstar. The fund has triple the stake in consumer cyclical companies as its peers and double the energy allocation.
Dodge & Cox Stock Fund
is one of the cheaper funds on the list, with an expense ratio of 0.51%, and tends to look for strong companies that have hit a rough patch. Morningstar describes the fund as one of the best large value strategies.
The screen also turned up lesser-known funds such as the
Marshfield Concentrated Opportunity Fund.
It has an active share of 95% and has beaten 99% of its peers over the past three year-period, although it is having a tougher go this year. Managers have skin in the game with at least $1 million investment in their funds.
Time will tell if these stockpickers are making the right moves for the changes ahead. But for those looking to add some truly active funds, finding managers who have done well while looking different than the index is a good place to start.
Write to Reshma Kapadia at [email protected]
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