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If active managers are dead, their stocks haven't heard about it

They’re beating the benchmark!

Or, at least, they’ve caught up with broader market. Shares of asset managers have been staging their own little bull market the last few weeks, with an index of 18 stocks in the S&P 1500 advancing in nine of the past 12 days. The rally has been enough to erase losses for the year and push the gauge past the S&P 500 based on 2017 returns.

Before you burn your ETF prospectuses, recall that the gains are coming amid a broader rotation into financial stocks that has coincided with a hammering in technology companies since June 9.

S&P 500 stocks strapped with the most net debt dropped 5% this year.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, Sept. 30, 2016. U.S. stocks advanced as Deutsche Bank AG erased losses in German trading and European shares pared declines, easing concerns that turmoil in the banking industry could spread. Photographer: Michael Nagle/Bloomberg

“It’s a push-and-pull game. Asset managers, like financial stocks in general, went from investors’ love to negligence, and now they are loved again,” said Ilya Feygin, senior strategist at WallachBeth Capital. “There is an expectation that milder rules for the financial industry will benefit them and there is some optimism about proposed corporate tax cuts.”

They “need to be thinking about guaranteed income streams” because there’s “not a lot of time for recovery,” an expert writes.
November 15
Pam Kelley is the Product Line Manager for Wolters Kluwer Tax and Accounting workflow solutions, including CCH Axcess Practice, CCH Axcess Workstream CCH Axcess iQ and CCH ProSystem fx Practice Management. She has been with Wolters Kluwer for almost 20 years, first as a business analyst, then product owner, before moving to product management earlier this year. Prior to working for Wolters Kluwer, Pam’s background includes working as Development Manager for another time, billing & workflow solution provider as well as Accounting Manager in private accounting.
November 15
Damon Russel is the Product Line Manager at Wolters Kluwer responsible for driving strategic development, sales and retention, and portfolio management of document management and client collaboration solutions for Tax and Accounting Professionals. He has over 10 years of experience delivering enterprise software solutions for Wolters Kluwer customers and their clients around the globe.
November 15

Sentiment toward the larger financial sector has been improving after the Treasury Department issued a report on overhauling banking regulations, including dialing back the Volcker Rule, something that asset manager like BlackRock had called for.

Actively managed funds saw the majority of the largest outflows this year as investors flocked to less expensive passive alternatives.
June 14

It’s not inconceivable the rally reflects a pickup in active funds’ performance. More than half of active equity products have beaten their benchmark indexes in the first quarter, JPMorgan Chase data show. But passive strategies keep gaining market share. Index funds including ETFs swelled by $104 billion in the first quarter as investors pulled $37 billion from active stock pickers in the span. U.S. investors moved $429 billion to passive while pulling $326 billion from active funds last year.

The rally in the asset managers simply reflects optimism inspired by the broader advance in the S&P 500, which on Monday reached an all-time high for the 25th time this year, according to Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management.

“You could easily argue that investors anticipating a broader market advance will want to get into asset manager shares as they should benefit from higher fees, but the series is more of a coincident indicator than a leading indicator,” Jacobsen said. “The sub-index amplifies moves in the broader market, but it doesn’t do a good job predicting where the market will go.”