Paul Nikolai, director and principal at wealth management firm Aspiriant, says he turns to active management not to swing for the fences but to protect his retired clients' life savings. “Most [retired clients] won't be earning anymore,” he notes. “Our group wants to see a track record [that is] firm, stable, a consistent style, and in the management team, too.”
Does the Morningstar Barometer help? “The gospel it's not, but it's relevant,” Nikolai says. “A good summary, interesting stuff.”
Nikolai says some active managers can beat their benchmarks because they're probably not holding the lower-quality stocks found in a large index. If there are headwinds, he says, he may not want all the mid-cap Chinese stocks an index holds.
Nikolai notes that emerging markets can be particularly volatile, making it a sector where “active managers can bring a lot of value when markets go haywire.”
That said, he also likes two passive Black Rock iShares ETFs to ward off possible choppy seas in this sector: the MSCI Emerging Market Minimum Volatility ETF (EEMV) and iShares MSCI All Country World Minimum Volatility ETF (ACWV).
At Symphony Financial Planning LLC, founder and president Paul Meyerhoff notes that passive funds can be subject to a sudden overweighting of hot stocks benefitting from a market run-up, and he values the flexibility that active managers can bring to the table.
“Active and passive management are not necessarily mutually exclusive,” he says.