With the Nasdaq plummeting 27.2% and the S&P 500 Growth Index close behind at -26.2%, growth stock investors have taken it on the chin this year.
With that said, some stock market segments are holding up reasonably well, including dividend-paying stocks, represented by the Dow Jones Select Dividend Index, and value stocks, represented by the S&P Pure Value Index in the graph below.
Better performing sectors may have gone unnoticed by investors in passively managed portfolios constructed around broad market indexes, which tend to be heavily weighted in technology, financials, and health care. Market sectors that have performed relatively well this year, such as energy, are generally underweight in broad market indexes – potentially putting passive indexed strategies at a disadvantage.
Consider, for example, the current Nasdaq drawdown, which began in November 2021, and is at this point the third longest on record going back to the mid-1980s. Only the bursting of the tech bubble in 2000 and the global financial crisis of 2007/2008 saw longer drawdown periods.
Table 1: Nasdaq Top 10 Drawdowns since February 1985 – May 2022
A passive approach to equity investing could expose investors to uncomfortable volatility in the current environment, which may lead to poor investor behavior that could dampen returns and jeopardize long-term investment goals.
In contrast, we believe an active management approach, which allows for tactical moves during periods of weakness, may be prudent during volatile times. Actively navigating market uncertainty is a hallmark of Horizon’s goals-based investment strategy.
This commentary is written by Horizon Investments’ asset management team. For additional commentary and media interviews, contact Chief Investment Officer Scott Ladner at 704-919-3602 or sladner@horizoninvestments.com.
Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments. Index information is intended to be indicative of broad market conditions. The performance of an unmanaged index is not indicative of the performance of any particular investment. It is not possible to invest directly in an index.
Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. This commentary is based on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed herein are our opinions as of the date of this document. These opinions may not be reflected in all of our strategies. We do not intend to and will not endeavor to update the information discussed in this document. No part of this document may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without Horizon’s prior written consent.
Other disclosure information is available at www.horizoninvestments.com.
Horizon Investments and the Horizon H are registered trademarks of Horizon Investments, LLC
©2022 Horizon Investments LLC
