Buy & Hold is Not Always Better
The Case for Tactical Growth in Mutual Fund Investing
In modern mutual fund investing, the debate between passive and active management has continued to rage amongst portfolio managers. While the traditionalist buy-and-hold advocates emphasize the benefits of long-term stability, those promoting active management believe their strategy offers a compelling case for investors seeking tactical growth opportunities within the mutual fund landscape.
This article will discuss the potential value of the latter, going into detail about the history and erosion in sentiment of passive investing, while highlighting the strategic benefits and specific ways in which an active philosophy can create exceptional value (and portfolio protection) for mutual fund investors.
Active management as a concept involves a proactive investment strategy where fund managers utilize active decision-making to buy, sell, or hold securities based on thorough analysis and ongoing market insights. Unlike passive strategies that aim to replicate market performance, active management seeks to outperform benchmarks by leveraging market inefficiencies, sector rotation, and timely asset allocation.
Understanding Active Management vs Passive Investing
Developed in the 1970’s, the modern portfolio theory movement (MPT) placed emphasis on the risk/return benefits of passive allocation & diversification. This served investors and portfolio managers well over the ensuing decades, but as the markets get more expensive and saturated with capital, the alpha opportunity in passive strategies become less and less likely. This is where the increasingly dominant methodology of active management comes into play.
Benefit 1: Capitalizing on Market Opportunities
One of the key advantages of active management is the ability to capitalize on market opportunities. Fund managers can identify undervalued assets, emerging trends, and potential market shifts, allowing investors to benefit from timely investment decisions. This agility in response to market dynamics can result in superior returns compared to passive strategies over certain market cycles.
Benefit 2: Managing Risk Effectively
Active management also offers a means to manage risk effectively. By actively monitoring and adjusting portfolios in response to changing market conditions, fund managers can mitigate downside risks and protect capital during market downturns. This active risk management approach provides investors with a level of downside protection that may not be achievable through passive strategies alone.
Benefit 3: Adaptability in Dynamic Markets
In today’s dynamic and interconnected global markets, adaptability is crucial for investment success. Active management enables fund managers to adjust portfolio allocations, sector exposures, and asset classes based on evolving economic indicators, geopolitical events, and industry trends. This flexibility allows investors to navigate market volatility and capitalize on opportunities across various market environments.
Dispelling Common Misconceptions
Despite the advantages, active management has faced criticism, with some investors citing higher fees and potential underperformance compared to passive strategies. However, it’s essential to recognize that not all active managers are created equal. Through diligent research, investors can identify skilled and experienced fund managers with a proven track record of delivering consistent returns net of fees.
Selecting the Right Active Funds
When considering active management in mutual fund investing, due diligence is paramount. By selecting actively managed funds strategically, investors can harness the potential for tactical growth while mitigating potential drawbacks.
This is where HCM Funds thrives. A diverse array of actively managed strategies built to perform across market environments through a growth-oriented methodology underpinned by proprietary tactical risk management, the HCM fund family provides a comprehensive range of active MF strategies for every type of investor.
HCM Dynamic Income Fund – Pure fixed income built for total return.
HCM Dividend Sector Plus Fund – Value-driven conservative equity fund built for capital appreciation.
HCM Tactical Growth Fund – Risk-adjusted multi-asset growth fund built for capital growth.
HCM Income Plus Fund – Objective-driven multi-asset class income fund built for total return.
Embracing Tactical Growth With Howard Mutual Funds
While buy-and-hold strategies have their merits, active management presents a compelling case for investors seeking tactical growth and enhanced portfolio performance. By leveraging market opportunities, managing risk effectively, and adapting to dynamic markets, active managers can potentially deliver superior returns over the long term.
To learn more about how the active approach can create investment advantages, contact HCM Funds today.
Disclosure:
Investors should carefully consider the investment objectives, risks, charges, and expenses of Mutual Funds and ETFs. This and other important information about the Funds are contained in the prospectus, which can be obtained at https://www.howardcmfunds.com or by calling 770- 642-4902. The prospectus should be read carefully before investing. HCM Funds are distributed by Northern Lights Distributors, LLC, member FINRA/ SIPC. Northern Lights Distributors, LLC and Howard Capital Management, Inc. are not affiliated.
Howard Capital Management, Inc. (“HCM”) is registered with the SEC and only transacts business where it is properly registered or is otherwise exempt from registration. SEC registration does not constitute an endorsement of the firm by the Commission, nor does it indicate that the advisor has attained a particular level of skill or ability. Changes in investment strategies, contributions or withdrawals, and economic conditions may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for an investor’s portfolio.
Mutual funds involve risk including possible loss of principal. When the Fund is out of the market and in cash or cash equivalents, there is a risk that the market will begin to rise rapidly and may cause the Fund to miss capturing the initial returns of changing market conditions. The mutual funds in which the Fund may invest may use leverage. Using leverage can magnify a mutual fund’s potential for gain or loss and therefore, amplify the effects of market volatility on a mutual fund’s share price. The Fund may be subject to the risk that its assets are invested in a particular sector or group of sectors in the economy and as a result, the value of the Fund may be adversely impacted by events or developments in a sector or group of sectors. The price of small or medium capitalization company stocks may be subject to more abrupt or erratic market movements than larger, more established companies or the market averages in general. A higher portfolio turnover will result in higher transactional and brokerage costs and may result in higher taxes when Fund shares are held in a taxable account. ETFs and mutual funds are subject to investment advisory and other expenses, which will be indirectly paid by the Fund. As a result, the cost of investing in the Fund will be higher than the cost of investing directly in other investment companies and may be higher than other mutual funds that invest directly in securities. The market value of ETF and mutual fund shares may differ from their net asset value. Each investment company and ETF is subject to specific risks, depending on the nature of the fund.
3310-NLD-04/22/2024 | HCM-051624-082