As more and more money has flowed into passive index funds and ETFs, there has been growing concern over the level of influence these providers, such as Vanguard and Blackrock, have in terms of proxy voting. Assets in passive products have ballooned, and passive portfolio managers have been forced to buy more and more shares of index constituents, resulting in them being among the largest shareholders of many publicly-traded companies.
In late August, headlines across financial news media read along the lines of “This is now the longest bull market in history!” While there is some argument around what defines a bull market, whether a large-cap or all-cap index should be observed, and other technicalities including Price Return versus Total Return (which includes dividends), it is safe to say that the market’s run since the Global Financial Crisis has been among the longest bull markets in history.
The U.S. economy continues to hum along. Corporate earnings remain robust, consumer spending is healthy and a tight labor market is supporting inflation, which is hitting the Federal Reserve’s target of 2%. Within the stock market, strong performance in a few narrow areas have largely driven the returns of popular indices such as the S&P 500.
Peter Lynch, the former manager of the Fidelity Magellan Fund, has a famous story about three cocktail parties he attended as the market was moving through different phases. At the first party, at a time when the market is down, he tells people he’s a mutual fund manager and they quickly walk away to go speak to a dentist. At the second party, when the market has been moving upward, people listen to him about stocks for a little while before losing interest and again seeking out the dentist. But at the third party, when the market has been rallying for a while, not only do people intently listen to him talk about stocks, but they give him stock recommendations of their own!
Nearly ten years after the Financial Crisis, we are at a precarious place. Corporate earnings are strong, but lofty equity valuations and rising interest rates present significant reasons for concern. Many investors and advisors are taking steps to protect capital when the market inevitably heads south.
Data from Morningstar Direct
Dana has been managing equity strategies since 1999 with an emphasis on minimizing volatility and improving the consistency of results. We believe this type of approach is as important as ever. If you share this view, please subscribe to our new blog to receive our latest market insights which we trust will be useful to you while making investment decisions.