3 Portfolio Allocations Where Active Investing Helps

With one month in the books for 2024, and markets still waiting for a sign from the Fed, many investors may be looking to shake up their portfolios. What worked in 2023, after all, may not necessarily work in 2024. Active investing, however, is not a simple investing idea, but a principle through which investing can be understood. Indeed, whole sections of a portfolio may benefit from adding an active view.

Active Investing in Core Fixed Income

Starting off with a big one, consider active investing for a core fixed income allocation. While there’s often a case for active investing in smaller slices of fixed income such as, for example, short duration, pending rate cuts from the Fed may be driving investors away from shorter-term debt. Instead, investors may want to consider how an overall core view could benefit from active.

Seasoned active managers bring notable experience that simple indexed ETF managers can’t leverage in the same way. Indeed, active management also often brings an emphasis on bottom-up, fundamentals-focused analysis of securities that can help in a shifting fixed income landscape. Perhaps most importantly, however, active investing empowers managers to quickly shift gears. For a core allocation in a year with potentially multiple rate cuts, that could be a powerful tool.

An Active Approach to Foreign Equities

Looking to make a foreign equities allocation? On the one hand, an expensive U.S. equities market may be driving investors to invest abroad. On the other, however, the landscape is as complicated as ever, with geopolitical risks pervasive and key markets like China disappointing.

Clearly there are opportunities. As with core fixed income, an active approach could be really beneficial. For foreign investing, a lack of information about events and the firms themselves is key challenge active can address. Seasoned active management teams can include experts on multiple markets, and with active’s ability to adjust quickly, those managers can mitigate risk compared to staid passive ETFs.

Value Firms

Value has had a few false starts lately, with economic conditions repeatedly hinting that it could be time for value. Instead, growthier investing has remained a durable source of return with the mega-cap tech space particularly rewarding. That may speak to a change of strategy for a value allocation. An active approach to value could find better opportunities than a simple indexed approach might.