Current Bear Market Gives Active Managers Time to Shine

If ever there was a time for active stock managers to prove their worth, this has been the year to do so. As the market slipped from bull to bear, major pricing dislocations between sectors and individual stocks have created the ideal environment for active managers to separate the wheat from the chaff.

It appears that after more than a decade of persistent underperformance, the current bear market has given active managers a time to shine. Active equity ETFs have been outperforming their passive peers, with more than half of U.S. stock funds outperforming the average passive portfolio year-to-date through May 30. This is up from 45% in 2021.

Active value and core funds, in particular, proved their mettle, outperforming across small-, mid-, and large-cap stocks. Data from Refinitiv Lipper show that 80% of active large-cap value funds and 62% of active mid-cap core funds beat the average return for comparable passive funds through May.

Since most active managers have a bias toward value and quality stocks, Scott Opsal, director of research and equities at the Leuthold Group told Barron’s that “a year like this is a tailwind for them.”

Active funds in many stock categories have mitigated losses during the bear market. The average annual return through May for active large-cap value funds was -4% compared with -7.3% for comparable passive funds. Active small-cap core funds, meanwhile, returned -10.9%, versus -13.1% for passive peers.

“We're seeing growing demand for active ETFs as advisors build ETF portfolios that own more than just index-based products in an effort to outperform the broader market in a risk-conscious approach,” said Todd Rosenbluth, head of research at VettaFi.

With inflation the highest it’s been in four decades and interest rates rising, markets are expected to remain volatile. In such a volatile market, passive ETFs may not offer protection against downside risk. They also don’t offer investors a way to seek above-average returns.

T. Rowe Price offers a suite of actively managed ETFs. T. Rowe Price has been in the investing business for over 80 years through conducting field research firsthand with companies, utilizing risk management, and employing a bevy of experienced portfolio managers carrying an average of 22 years of experience.

For more news, information, and strategy, visit our Active ETF Channel.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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