The arguments in favor and against active management are too long to tackle in a single blog post – and we won’t try to do so here. But as stocks find their footing after March’s downturn, we believe there are a couple important factors poised to work in active managers’ favor: size and quality. Both elements could be significant tailwinds for active managers in the months ahead, particularly when considering the composition and performance of indices heading into the slide.
In Current Environment, Quality Matters
Investment philosophies and styles vary, but many active managers – including Dana – emphasize “high quality” companies in the stock selection process. This means a preference for companies with stronger balance sheets, durable earnings streams and lower debt levels. Conversely, it means avoiding companies with high debt, and relatively low return on equity (ROE)* or return on assets (ROA)**.