TEK2day

Operating at the Intersection of Technology and the Capital Markets

The Return of Actively-Managed Funds

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This is a stock picker’s market. The table seems to be set for a return to active management.

It seems the equity markets have traded in synchronicity over the past number of weeks during the COVID outbreak. There has been little differentiation between individual Technology stocks on the way down and on up days. This is what happens when passive funds designed to mimic the market rule the day. The opportunity to make a bold call and stand out from the pack is eliminated. In previous notes we have highlighted durable businesses such as Adobe, Amazon, Microsoft, SS&C Technologies and Verisk to name a few.

Active managers are more likely to identify individual stocks that present out-sized alpha generation opportunities. Active managers are willing to average down on quality names where they have faith in the management teams, understand the durability of the operating model, understand the competitive positioning, product pipeline and other differentiating attributes.

We expect more market turbulence in the coming weeks as companies begin to report March quarter results. March quarter earnings calls will undoubtedly generate uncertainty. This uncertainty will likely lead to some level of broad-based selling that will punish the offenders as well as companies that have performed well. With disruption comes opportunity – at least for the active investor.