When It Comes To Disruptive Technologies, Active Management May Be A Better Approach For Individual Investors

Monday, October 01, 2012 08:27
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When It Comes To Disruptive Technologies, Active Management May Be A Better Approach For Individual Investors

Tags: active management | investor behavior | mutual funds

Investors have made fortunes trading technology companies in booming markets and the attraction of new devices on the market is fueling investment once again.

 

But in an area that can wipe out fortunes even quicker than they’ve been made, active management may be a smarter approach than doing it yourself.

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For example, shares of Apple are up 64% this year. But shares of behemoth Microsoft are waking up from a lackluster run, returning only about 18.5% so far in 2012.
 
The personal computer (PC) market is facing significant challenges from the popularity of tablets.
 
Investors tend to inadvertently lump large companies in with select stories, diminishing their returns in the process.
 
Expected returns for the tablet market are as high as 50% this year; contrast that with the flat performance from PCs so far.
 
Individuals tend to hold on to losing investments, especially in the tech sector where market moves can be quick and substantial.
 
Technology mutual funds returned an average of 21% during 2012’s first quarter. Individual investors also tend to wait until they see evidence of a run up, then jump in to try to participate.
 
By then, the so-called easy money has already been made, setting late buyers up for possible disappointment.
 
The entire tech industry is undergoing disruption where PC-based products are giving way to tablet- and smart phone-based products.
 
The beauty of investing in a fund or other actively managed portfolio is the reduced volatility.
 
Funds may not return as much as an individual position but they also mitigate much of the risk inherent in historically volatile sectors. Although the majority of mutual funds tend to underperform, tech sector funds may be a more sensible way for individual investors to profit.
 

 

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