Investors can find many attractive elements in the high-yield bonds and dividend-paying equities. But deciding that you want to invest in these bonds or equities is only half of the equation. The second half is to identify your investment strategy. Several factors must be considered when evaluating the benefits of an active versus a passive approach, including asset class, investment vehicles, fees, tax issues and performance.
At Pacific Global ETFs, we believe the advantages of an active-management approach to investing are abundant.
Because actively managed ETFs aren’t forced to own every asset in an index, they can execute a two-pronged strategy: 1) avoiding bonds or equities that have concerning qualities, and 2) overweighting bonds or equities with appealing attributes. For example, an active strategy might emphasize assets with predictable medium-term performance versus companies whose industries are more likely to experience disruption.
By selecting names with favorable risk/reward profiles and omitting some securities that passive indices are required to hold, Pacific Global ETFs believes capital preservation benefits and consistent income will be realized over time. We don’t suggest that advisors and investors who utilize passive strategies for income need to abandon them entirely. But integrating an active approach could complement their current strategy and provide better diversification.
Historically, stock pickers have tried to predict big winners and emulate the insightful investors who bought Apple for $2 a share in 2004. At Pacific Global ETFs, we feel an effective approach to income investing focuses just as much on avoiding miscalculations. After all, superior portfolio performance isn’t just about making the right call before an asset takes off, but not making the wrong call before it crashes.
Michael Skillman is chief executive officer of Cadence Capital Management, sub-advisor to Pacific Global US Equity Income ETF and Pacific Global International Equity Income ETF.