Chris Hedges, Managing Director of the $450 billion mutual fund company MFS has two immediate thoughts about the market: one, fund managers are not thinking long term, and two, active management is going to beat passive management once this 8 year beta rally peters out.
“We think that investor bulls and investor manager objectives are not necessarily aligned,” Hedges tells Julie Cooling, Founder and CEO of RIA Channel. That’s because the average stock is being held for under a year and yet investors are telling mutual fund companies that they’re in those products for the long haul. He says one reason for the short-term mind set is because fund managers are paid an incentive on one year performances over their benchmark. MFS pays their fund managers incentives for three years out or more. “That puts us on the same side of the table as the investor in our opinion,” he says.
In the video, Hedges notes that companies with low quality balance sheets and low quality earnings have been performing as well as those that have high quality earnings and high quality balance sheets. But when that shakes out, active managers will be more in tune with the market. He also discusses the MFS platform and their research-driven focus on investments.