One prominent asset manager says that dominated of today’s market by passive funds and quantitative strategies is creating opportunities for his actively managed funds. This according to an article inInstitutional Investor.
Warrren Koontz, head of value equity for Jennison Associates (the $176 billion fundamental fixed income and equity manager for PGIM), said, “There’s no better time to be an active manager than now—and it’s even more dramatic in the value space.” He explained that his firm has been watching the flow of funds into passive strategies and that these flows “have become an important signal about potential buys and sells.”
For example, Koontz said he tracks large-cap equity ETFs to detect changes in sentiment. The article reports: “Given the recent debate around whether investors should switch from growth and defensive strategies to value and higher volatility,” Koontz is paying attention to whether flows are reversing out of a minimum-volatility ETF that has seen a big inflow this year. If investors are pulling out of the fund, Koontz says, it would serve as evidence that a shift is underway.
Koontz also notes that moves by index funds can drive prices to extremes, which then creates opportunity. “If you’re someone like me who is a value manager focusing on the intrinsic value of companies, and you have a top-down force that’s driving a whole group of stocks out of favor, it creates wonderful opportunities to invest.”