The benefits of active management

by Molly Musler | Jan 11, 2021

By Andrea Durbin

Active management is not just about attempting to “beat” a benchmark. Active management is about mitigating risk, managing taxes, and having the ability to construct an investment portfolio that reflects your values. At Badgley Phelps, we actively manage portfolios by selecting individual securities for our clients through a disciplined and time-tested process. 

Benefits of active investment management 
  1. The key benefits to active investing include:

    Risk reduction. At Badgley, we construct portfolios with individual high-quality stocks and bonds. This balanced approach is designed with the goal of preservation of capital and growth. Building a balanced portfolio with stocks and bonds should help lower portfolio volatility because the returns of these two asset classes have historically had a low correlation.  

    Investing in high-quality stocks means purchasing companies with rising revenues, steady earnings growth, low debt, and a strong management team with a track record of successfully guiding the company on an upward trajectory. High-quality bonds are those with a credit rating of investment grade or higher. 

  2. Tax management. Taxes are the largest expense to any investor's return. Unlike mutual funds, actively managing individual securities provides flexibility and control to effectively optimize tax strategies for each individual investor.

  3. Market resiliency. Active management provides the opportunity to selectively purchase only those companies that meet our quality criteria. And unlike an index fund we can over and underweight stocks, and sectors, based on relative attractiveness rather than the capitalization weighting of an index.  Such flexibility can assist in protecting the portfolio in a declining market and create portfolios customized to reflect the risk tolerance and goals for each client.   

Alternative to active investment management 

The alternative to active management is passive investing. Passive investing is a style of management associated with mutual and exchange-traded funds where the fund’s holdings reflect that of a market index. Passive investments are often well diversified and low cost, but there is no analysis or opportunity to select what companies or sectors in which you choose to be invested. A passive investor should expect their returns to be fairly in-line with the underlying index because there is no ability to customize an index fund to protect the portfolio on the downside or potentially outperform the index on the upside. The bottom line is that there’s less customization in passive investing than in active management—and customization is critical. 

The Badgley Phelps difference
Badgley Phelps has actively managed investment strategies for our clients for over 50 years. We are unique because we have an in-house research team that is responsible for selecting the individual securities in which our clients are invested. Our wealth management and financial planning teams work together with our clients to establish their unique investment goals and objectives. This discovery process is key in determining the appropriate allocation of stocks, bonds, and cash. We have a history of providing customized, long-term investment strategies built on our stock and bond selection methodology, a disciplined investment management process, and client-focused service.  

 

To speak with an adviser about your unique financial situation, contact us

 

 


 

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