As Wall Street navigates through the uncertainties that lie ahead in 2024, investors are being urged to steer clear of autopilot strategies and instead approach the market judiciously. In this challenging landscape, where global conflicts persist and economic recovery efforts are underway, the spotlight may shine on active managers.
One prominent voice in the investment world is Jean Boivin, head of BlackRock Investment Institute, who emphasizes the need for a deliberate approach to portfolio management. For this reason, BlackRock favors active strategies for both bonds and equities in the coming year.
Over the past decade, passive strategies have gained popularity and now account for 49% of all assets. This marks a significant increase from the 25% seen a decade ago, as reported by research and consulting firm Cerulli Associates.
While skilled stockpickers pride themselves on their ability to analyze company fundamentals, active managers add value by effectively managing risk. Russel Kinnel, director of ratings and manager research at Morningstar, supports this notion.
To identify potential active funds worthy of consideration, we conducted a search for U.S. large-cap managers with a high active share. Active share measures how different a fund’s composition is from its benchmark.
Our search started with a list of funds whose portfolios differed from their benchmarks by at least 85%. However, differentiating from the benchmark does not guarantee strong performance. Therefore, we further refined our selection criteria to include only those funds that had consistently outperformed at least two-thirds of their peers over both the three- and five-year periods.
After careful evaluation, we discovered nine funds that met these criteria and were open to new investors. These funds boasted assets of at least $500 million or more and were managed by both well-known industry figures and hidden gems. It is important to note that active funds, including those on this list, can come with higher fees.
As the year progresses, investors will need to navigate the complexities of the market with increased caution. The rise of active managers offers an alternate route to success in these uncertain times. By choosing carefully and investing strategically, investors can position themselves for long-term growth and stability.
Top Funds to Consider for Active Investing
When it comes to active investing, finding the right fund with a solid track record is crucial. Here are a few funds that have consistently performed well and stood out from the rest:
Oakmark Select and Oakmark Investor Funds
Led by value veteran Bill Nygren, both the concentrated $5.6 billion Oakmark Select and the larger $18 billion Oakmark Investor funds have a strong reputation for savvy stock picks. These funds have consistently delivered impressive results.
Invesco Comstock Select Fund
The Invesco Comstock Select Fund is known for dialing down risk during volatile market conditions, which has contributed to its strong long-term performance. This fund primarily focuses on smaller and cheaper companies compared to its peers.
Smead Value Fund
According to Morningstar, the Smead Value Fund has achieved a nearly 14% average annual return over the last three years, surpassing 99% of its peers. This fund has a significantly higher stake in consumer cyclical companies and energy allocation compared to other funds.
Dodge & Cox Stock Fund
With an expense ratio of just 0.51%, the Dodge & Cox Stock Fund offers a more affordable option for active investors. This fund specializes in identifying strong companies that have experienced temporary setbacks. Morningstar has recognized it as one of the best large value strategies.
Marshfield Concentrated Opportunity Fund
The Marshfield Concentrated Opportunity Fund may be lesser-known, but it has certainly proven its worth. With an active share of 95%, this fund has outperformed 99% of its peers over the past three years. Although it’s facing some challenges this year, the fund managers have demonstrated their commitment by having at least $1 million invested in their own funds.
It’s important to remember that investing always carries some level of risk, and it remains to be seen how these stockpickers will fare in the future. However, for those seeking truly active funds, these managers have shown the ability to perform well while deviating from the index.