Active management shines in a time of indexing

Passive management, or buying stocks that track an index, has caught on over the last several years. But changes in the economy and markets have made it easier for active managers to now show their worth, too. Active managers, those who pick stocks with the intent to beat an index and not just match its performance, have enjoyed a comeback in recent months and say that they’re now enjoying a more fertile ground for picking stocks. Money managers say that there are more bargains to be had now, especially among stocks that aren’t included in the major indexes tracked by large passive funds. Last year, 63% of active small-cap growth funds and 54% of active small-cap value funds beat their benchmarks, up from 29% and 18%, respectively, in 2016, according to Morningstar. The money that goes into passive index-tracking funds tends to gravitate toward the companies that make up an index. The result is those stocks get bid up in price because of the massive flows into passive products, while other stocks often remain cheaper. In addition to those cheaper stocks, active managers can use stocks that aren’t typically included in a benchmark to amplify returns. Azzad small cap growth