The Benefits of Active Management and Risks of Holding Cash
Investors who are cautious and piling into cash may want to consider alternative options. According to Matthew Bartolini, managing director and research head of SPDR Exchange Traded Funds, active management can provide stability and income, while also creating more opportunities for upside.
In an interview with CNBC’s “ETF Edge,” Bartolini emphasized that active fixed income has been consistent in providing support within the active ETF construct, not only in terms of cash flows but also in returns. Bartolini argues that active management strategies offer investors more flexibility, consistent performance, and improved tax efficiencies, while also providing better forward-looking returns.
While Bartolini acknowledges that higher returns come with higher volatility, he sees significant benefits from active management, particularly in terms of creating portfolios that can generate income returns while maximizing risk. He warns that cash carries its own set of risks, as the income on the cash portion of the market is not as stable as it once was due to reinvestment risk.
Dan Egan, vice president of behavioral finance and investing at robo-advisor Betterment, pointed out the challenges associated with pulling investors out of cash. He noted that it’s very difficult to get people to think about bonds when there’s the lure of risk-free cash and the perceived safety of FDIC insurance. Betterment’s variable high-yield cash account pays 4.75% APY, with a promotional rate of 5.50% for new customers for three months.
Ultimately, Bartolini and Egan highlight the potential benefits of active management and the risks associated with holding onto cash, providing investors with valuable insights into making informed investment decisions.