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“It is difficult to get a man to understand something, when his salary depends upon his not understanding it.” This quote from Upton Sinclair might resonate with proponents of passive investing who find themselves faced with another argument for active management, written by a commentator whose salary is indeed paid for by active management.

But mindful of the immense challenges faced by institutional investors today and inspired by my firsthand observation of highly skilled asset managers over more than 20 years, I think it is worth sharing several reasons why I believe active management has a meaningful role to play in investors’ portfolios, even (and perhaps especially) in a world where passive investing may too. I frame this argument through seven concerns that I believe investors must address as they consider how passive and active strategies can help them achieve their investment objectives.

 

1 See, for example, Greenwich Associates’ 2015 US Institutional Investors survey, which found average equity and fixed- income allocations of 54% and 35%, respectively.

2 Data Source: Standard and Poor’s

3 Data Source: MSCI

4 Data source: FactSet

5 Source: Horizon Actuarial Services, Survey of Capital Market Expectations, August 2019

6 Source: MorningStar

7 See, for example, Joseph Gerakos, Juhani Linnainmaa, Adair Morse, “Asset managers: Institutional performance and smart betas,” Chicago Booth Research Paper, No. 16-02, November 2016

8 See, for example, Clifford Asness, Tobias Moskowitz, and Lasse Heje Pedersen, “Value and Momentum Everywhere,” The Journal of Finance, Vol. 68, No. 3, June 2013 and Andrea Frazzini and Lasse Heje Pedersen, “Betting Against Beta,” Journal of Financial Economics, Vol. 111, No. 1, January 2014.

 

Important Risks: Investing involves risk, including the possible loss of principal. • Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. • Foreign investments may be more volatile and less liquid than US investments and are subject to the risk of currency fluctuations and adverse political and economic developments. These risks may be greater for investments in emerging markets. Diversification does not ensure a profit or protect against a loss in a declining market.

Additional Information Regarding Bloomberg Barclays Indices Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.

The views expressed herein are those of Wellington Management, are for informational purposes only, and are subject to change based on prevailing market, economic, and other conditions. The views expressed may not reflect the opinions of Hartford Funds or any other sub-adviser to our funds. They should not be construed as research or investment advice nor should they be considered an offer or solicitation to buy or sell any security. This information is current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management or Hartford Funds. 

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From our sub-adviser, Wellington Management
Adam Berger Headshot
Multi-Asset Strategist

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