Passive vs. Active...vs. Proactive

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By Mike McDaniel, Chief Investment Officer

Despite the stock market being ‘flat’ through the middle of October 2014, many actively managed mutual funds are announcing significant capital gain distributions for 2014. Here are examples from American Funds, Ivy Funds, Franklin Templeton and Blackrock.

Meanwhile, passive advisors who didn’t make dramatic portfolio changes are bracing themselves for the inevitable client question: “how come this fund went nowhere in 2014 and I have to pay huge capital gains taxes?!”

2014 isn’t over yet and the proactive advisor can help educate and offset the tax burden generated by what looks like a big capital gain distribution year for actively managed mutual funds. Many advisors are talking about the opportunity this presents to move assets from underperforming vehicles.

Specifically, we’re hearing more advisors talk about a shift from actively managed strategies (due to underperformance, fees and excessive taxes) to passive or indexed strategies. We’re also hearing talk of a shift away from advisor-driven portfolios toward third party managers (particularly Separately Managed Account strategies). 

Riskalyze can help advisors analyze portfolios that focus on ETFs vs. SMAs vs. individual stocks. In particular, advisors are using the overall portfolio probability range and the Risk/Reward Heatmap to easily spot and highlight the risk/return differences between investment vehicles and identify efficient portfolios.

And don’t forget the potential for using these capital gains notices as an opportunity to contact prospects with strategies to help offset these kinds of taxable gains. Riskalyze can be a key asset to demonstrate to prospects how they can get a portfolio with the same or better return, at a lower level of risk.