Even before Pride month was underway, it seems as if it was open season on companies celebrating the LGBTQ community.

One by one, companies have come under an expanding attack. Anheuser-Busch, Target, Kohl’s and VF Corp.’s North Face brand have all felt the vitriol of this latest push from the right. And the list keeps growing. These companies have been branded as “woke capitalists” — and worse — as critics urged boycotts of these companies’ products. Bud Light came into the crosshairs after it struck a partnership with trans influencer Dylan Mulvaney, while North Face received backlash for an ad featuring drag queen Pattie Gonia. Target and Kohl’s have been criticized for Pride-themed clothing.

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While it’s too early to say how successful these efforts will be in lowering sales at the companies recently drawn into this attack, damage has been done to the stocks already. And some on Wall Street expect that to continue with analysts recently downgrading Target’s and Anheuser-Bush’s ratings, citing in part the ongoing controversy.

“The main reason boycotts generally are effective is because they threaten the reputation of the company by putting the company in a negative media spotlight, and companies don’t want to have negative attention of any kind drawn to them,” said Brayden King, a professor of management and organizations, who has studied how boycotts impact company stock prices, in an interview.

King’s research focused on 133 separate boycotts launched between 1990 and 2005, in a study that was published in 2011. About a quarter of the 177 companies targeted by these actions offered a concession to protestors.

“They often concede to boycotter’s demands, not because they feel that there’s sales pressure on them, but rather because they don’t want to continue to be a target of negative media attention,” he said.

King’s research found that the stock of a company will fall about 1% each day of national print media coverage. But once the issue falls out of the daily news cycle, the stock generally recovers.

The group has pushed for Target to put the Pride merchandise back on the sales floor and online, and do what it can to protect workers in the stores. Target has also received bomb threats from those claiming to support the LGBT community, who wanted the merchandise retured to the store, according to media reports.

Target’s stock has fallen about 10% since news broke on May 24. But shares were already trending lower after the retailer’s earnings report showed weakness in parts of its business.

Meanwhile, both VF Corp. and Kohl’s shares seemed to be bouncing back on Friday. After recovering some lost ground, the North Face parent is down about 9% since it launched its “Summer of Pride” ad on May 23. Kohl’s shares rose nearly 12% on Friday, recouping nearly all of the ground it lost. But the stock sank as low as $17.89 on Thursday, its lowest level since May 22, 2020.

Target’s stock sank to a 52-week low of $126.75 on Thursday, following a downgrade by JPMorgan to neutral. While analyst Christopher Horvers cited a weakening consumer as the primary reason that he expects tougher times ahead for the discount retailer, the recent controversies were mentioned as a factor in the decision. Horvers slashed his price target to $144 from $182.

Meanwhile, Wells Fargo analyst Edward Kelly said the recent pullback in the stock’s price might have been seen as a buying opportunity prior to this issue.

“The current stock price could have been a good entry point, but it’s hard to step in front of the current uncertainty,” Kelly wrote in a research note Thursday.

Kelly said that he has seen “early evidence of some near-term financial impact.” Among the factors he cited was Placer.ai data that showed foot traffic at Target stores was soft in the week ended May 28.

“Traffic has been a key bright spot for TGT as it struggled with margin issues, and a slowdown would be negative. It remains to be seen how long any impact would last,” Kelly said.

“If you build your argument to consumers only on the stuff, only on the features, only the functional utility of what it is that you do, then competitors can come in and offer that, just a copy of that, and claim that  they have a better mousetrap,” said Americus Reed, a professor of marketing at the University of Pennsylvania, in an interview Wednesday on CNBC’s “Power Lunch.”

“So a bit of … why it is so attractive to align with purpose and these sorts of issues is that … it gives you an opportunity to link more deeply with consumers,” Reed said. Even though it can go awry, the upside can be powerful because the connection “has powerful gravitational pull,” he said.

In fact, those strong relationships are usually why boycotts fail to hurt a company’s sales longer term, according to King. He said research has shown that for every consumer that stops buying a product another shopper will begin a “buycott” by purchasing items to show their support for the opposite side of the issue.

Still, with threats coming from both sides of the issue, and stocks suffering sharp selloffs, companies may proceed a bit more cautiously.

“They may internally continue to embrace those values as important to their culture and identity, but externally they may be more risk adverse in terms of how they communicate those values,” King said.

—CNBC’s Christopher Hayes contributed to this report.

Business: Shake Shack owns, operates and licenses Shake Shack restaurants, which offer hamburgers, chicken, hot dogs, crinkle-cut fries, shakes, frozen custard, beer, wine and other products. The company was originally founded in 2001 by Danny Meyer’s Union Square Hospitality Group. The company has owned restaurants in every region of the U.S. and licensed locations across the Middle East, Asia and the United Kingdom.

Stock Market Value: $2.76B ($65.40 per share)

Shake Shack entered a cooperation agreement with Engaged. As part of that agreement, the restaurant chain appointed Jeffrey D. Lawrence, former CFO of Domino’s Pizza, to its board and agreed to work with Engaged to identify an additional mutually agreed upon independent director to appoint to the Shake Shack board with restaurant operations experience.

Shake Shack is an iconic fast-casual restaurant founded by a culinary visionary, Danny Meyer. Through Union Square Hospitality Group, Meyer founded and operated some of the most critically acclaimed gourmet restaurants in the world for many years. Over the past 20 years, he and his team have developed one of the greatest casual hamburger chain restaurants in the country, Shake Shack. They took Shake Shack public in 2015 with 63 restaurants and have expanded to 436 restaurants in eight years.

Much of the senior management team came from Union Square Hospitality Group and the fine dining industry. Perhaps most notably the CEO, Randy Garutti, has a long history working with Meyer and was the general manager at Union Square Café and Tabla in New York City. The problem is that the same skillset required to create a brand and run upscale, gourmet restaurants is not the same skillset needed to operate and scale a quick-service restaurant. In fact, some might say it is a completely opposite skillset. Accordingly, restaurant margins at Shake Shack have declined by 790 basis points since 2018 and corporate return on capital has gone from greater than 30% to less than zero today. As a public company, Shake Shack has significantly underperformed both the market and its peers.

The good news is that the hard part – creating an iconic brand – has already been done. Not many people can do that. The easy part – scaling an already strong and growing brand – has been done by innumerable people, many of whom are available to do it again. This means getting a board that is focused on putting together a management team with experience operating and expanding quick-service or fast-casual restaurants and holding that team accountable if they do not succeed.

To that end, Engaged announced that it had identified three new director candidates and was pushing for the company to retain an operational consulting firm. One of these candidates, Kevin Reddy, has extensive experience operating and growing restaurant chains like Chipotle. Another candidate is a co-founder of Engaged, and the other is an experienced advisor and consultant. Because the board is staggered, only four of 11 directors are up for election this year. That is only the tip of the iceberg of the challenges Engaged faces in this campaign as this is as bad of a corporate governance structure as we have seen in a public company.

Meyer controls just under 9% of the company’s shares, but he holds special rights over corporate actions that far exceed his economic ownership, including (i) the ability to appoint five directors; (ii) the ability to designate 50% of the members of each committee of the board; (iii) hiring or firing the CEO; and (iv) increasing or decreasing the size of the board. In other words, this is Meyer’s company and only he can make significant changes.

As a result, this is a crusade of persuasion for Engaged. Engaged had an opportunity to go to a proxy fight and have the shareholders replace three incumbent directors, including the CEO, with new directors. While this would not have given Engaged or the new board the power to overrule anything Meyer and his incumbent directors wanted, it would have sent a strong message to them that the shareholders expected change. Instead, Engaged settled for one director who was not even one of the three they proposed and a second to be agreed upon, which also will not likely be one of the three the firm proposed.

This is a definite victory for the company as there is very little one director could do on a board like this. It allows Engaged to claim a win, but the firm is still reliant on Meyer’s decisions, and it lost a valuable opportunity to send a message to management. This effectively changes nothing and gives Engaged no more power to institute the changes it so astutely identified to create shareholder value. Identifying the problems is one thing and having a path to fix them is entirely different. The path here is completely controlled by management.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.

The health care sector experienced rapid change over the past decade with the rise of digital services, bringing a range of opportunities to invest. 

TipRanks recognized Wall Street’s 10-best analysts in the space for identifying the best investment opportunities. These analysts outdid their peers with their stock picking and generated noteworthy returns through their recommendations.

TipRanks leveraged its Experts Center tool to recognize the ones with a high success rate. We also analyzed each stock recommendation made by health care sector analysts in the past decade. 

The ranking shows the analysts’ ability to deliver returns from their recommendations. TipRanks’ algorithms calculated the statistical significance of each rating, average return and the analysts’ overall success rate. In addition, every rating was measured over one year.

Thomas Smith tops the list. Smith has an overall success rate of 51%. His best rating has been on Viking Therapeutics (NASDAQ:VKTX), a clinical-stage biopharma company focusing on therapies for metabolic and endocrine disorders. His buy call on VKTX stock from April 27, 2022 to April 27, 2023 generated a stellar return of 791.30%.

Brandon Couillard is second on this list and has a success rate of 68%. Couillard’s top recommendation is Exact Sciences (NASDAQ:EXAS), a provider of cancer screening and diagnostic tests. The analyst generated a profit of 450% through his buy recommendation on Exact Sciences stock from May 4, 2016 to May 4, 2017. 

John Eade bags the fourth spot on the list. The five-star analyst has a 69% overall success rate. Eade’s best recommendation has been on Moderna (NASDAQ:MRNA), a pharmaceutical and biotechnology company. His buy call on MRNA stock generated a 265.90% return from June 30, 2020 to June 30, 2021.

Fifth-place analyst Michael Wiederhorn has a success rate of 66%. His best recommendation is Community Health Systems (NYSE:CYH), a company engaged in the management and operations of hospitals. The analyst delivered a profit on this stock of 298.2% from May 1, 2020 to May 1, 2021.

Taking the sixth position is Charles Duncan. The analyst has a success rate of 52%. His top recommendation was Novavax (NASDAQ:NVAX), a biotech company that develops vaccines. Through his buy call on NVAX stock, Duncan generated a solid return of 800% from March 17, 2020 to March 17, 2021.

TD Cowen analyst Yaron Werber is seventh on this list, with a success rate of 65%. Werber’s best call has been a buy on the shares of Ultragenyx Pharmaceutical (NASDAQ:RARE), a biopharma company focusing on developing innovative medicines for rare and ultrarare diseases. The recommendation generated a return of 267.50% from Dec. 18, 2019 to Dec. 18, 2020.

In the eighth position is Geulah Livshits of Chardan Capital. Livshits has an overall success rate of 42%. The analyst’s top recommendation is Cabaletta Bio (NASDAQ:CABA), a clinical-stage biotech company focused on developing therapies for autoimmune diseases. Based on her buy call on CABA, the analyst generated a profit of 800% from Oct. 11, 2022 through now. 

Richard Newitter ranks ninth on the list. The five-star analyst sports a 62% success rate. His top recommendation has been on Organogenesis (NASDAQ:ORGO), a regenerative medicine company providing products for advanced wound care and surgical biologics. The buy recommendation generated a return of 397.9% from May 12, 2020 to May 12, 2021.

Boris Peaker has the 10th spot on the list, with a success rate of 47%. Peaker’s best call has been a buy on shares of Trillium Therapeutics, a clinical-stage company developing therapies for cancer treatment. Pfizer (NYSE:PFE) later acquired Trillium. The recommendation generated a return of 800% from Jan. 7, 2020 to Jan. 7, 2021.

Wall Street has eagerly rallied around companies making notable strides in artificial intelligence. However, several investors warn that the increasingly widespread deployment of AI has opened a “Pandora’s box” of environmental, social and corporate governance, or ESG, concerns.

Generative AI models — ChatGPT being the most prominent example — have already been implemented in technical roles, such as financial analytics and drug development, as well as more human-facing sectors such as customer service and marketing. 

Amid the quick rise and implementation of AI across industries, some investors worry that the potential ESG downsides haven’t been adequately considered and safeguarded against. 

Investors have called for more transparency and data from companies on how they’re using and investing in AI technology. The current lack of sufficient data from U.S. companies means the space is currently “the Wild West,” as described by Thomas Martin, a senior portfolio manager who runs ESG strategy at Globalt. 

“If you’re an ESG-focused investor, you’re dependent on the information that you get. The companies aren’t providing that yet, except the things that will make you imagine things. You can’t base an evaluation based on something you’re imaging, or don’t know if it’s true or accurate, or when it’s coming,” Martin said. “There has to be information that’s out there that comes from the companies themselves and how they’re using [AI].”

Researchers have also sought to quantify fairness and bias in AI models through various socio-ethnic parameters. For example, Stanford’s artificial intelligence index report score for bias across AI models. It found a “counterintuitive” correlation between fairness and bias: models that scored better on fairness metrics demonstrated stronger gender bias, and less-gender biased models were more toxic.

Ted Mortonson, managing director at Baird, warned that he sees AI in a similar position to where bitcoin was a few years prior, noting that the U.S. regulatory framework is “not set up for very extreme technology advances.” He added Microsoft CEO Satya Nadella’s comments during the company’s earnings Q&A that it has “taken the approach that we are not waiting for regulation to show up” did not bode well.

“For my clients, that rubbed a lot of people the wrong way. Because this is a social issue,” he said. “I mean, if the [Federal Reserve] wants unemployment to go up and a weakening economy, generative AI is going to do it for them.”

Baird’s Mortonson also mentioned that tech companies themselves could make AI-ESG analysis easier. He noted that databases and cloud-based companies such as ServiceNow and Snowflake are “incredibly well-positioned with Next Generation AI” to release accurate and detailed ESG data given the significant amounts of data they store.

The Stanford report, which was published earlier this year, found that only 18% of Americans are more excited than concerned about AI technology — with the foremost concern being “loss of human jobs.” 

Additionally, a recent study by professors at Princeton, the University of Pennsylvania and New York University suggested that high-income, white-collar jobs may be the most exposed to changes from generative AI. 

It added that policy to help minimize any disruptions stemming from AI-related job losses “is particularly important” as the effects of generative AI will disproportionately target certain occupations and demographics. 

“From a social standpoint, it will impact employment, both blue-collar and white-collar employment, I would say materially in the next five to 10 years,” Mortonson said.

Globalt’s Martin sees such losses as part of the natural cycle of technological advancements.

“You can’t stop innovation anyway; it’s just human nature. But it frees us up to do more, with less, and to foster growth. And AI will do that,” said Martin.  

“Are some jobs gonna go away? Yeah, most likely. Will aspects of jobs get better? Absolutely. Will that mean that there will be new things to do? That even the people who are doing the old things can do and move into and migrate into? Absolutely.”

Mortonson was less sanguine. 

“The genie’s out of the bottle,” he said, noting that companies are likely to embrace AI because it can boost earnings. “You just don’t need as many people doing what they’re doing on a day-to-day basis. This next generation of AI [is] basically bypassing the human brain of what a human brain can do.”

“Technology’s moving so quickly, and I think this is the most disruptive from a social fabric standpoint. It’s actually pretty damn scary. And I’m an engineer by trade, and I’ve been doing this for 30 years,” he said. “You know, what I do for a living can probably be replaced in two to three years.”

Follow our live coverage of Warren Buffett at Berkshire Hathaway meeting.

OMAHA, Neb. — Warren Buffett said Saturday that Berkshire Hathaway doesn’t plan on taking full control of Occidental Petroleum, an oil giant where it has amassed a stake north of 20%.

“There’s speculation about us buying control, we’re not going to buy control,” the ‘Oracle of Omaha’ said at Berkshire’s annual shareholder meeting. “We wouldn’t know what to do with it.”

In August last year, Berkshire received regulatory approval to purchase as much as a 50% stake. Since then, Buffett has been steadily adding to his bet, including this year, boosting the conglomerate’s stake in the Houston-based energy producer to 23.5%. The moves had fueled speculation that the 92-year-old investor could acquire the whole company.

“We will not be making any offer for control of Occidental, but we love the shares we have,” Buffett said. “We may or may not own more in the future but we certainly have warrants on what we got on the original deal on a very substantial amount of stock around $59 a share, and warrants last a long time, and I’m glad we have them.”

Berkshire owns $10 billion of Occidental preferred stock, and has warrants to buy another 83.9 million common shares for $5 billion, or $59.62 each. The warrants were obtained as part of the company’s 2019 deal that helped finance Occidental’s purchase of Anadarko.

Shares of Occidental were down about 3% this year, after more than doubling in 2022. The stock was the best-performing name in the S&P 500 last year.

— CNBC’s Sarah Min contributed reporting.

Earnings for Warren Buffett’s Berkshire Hathaway jumped in the first quarter, thanks in part to a rebound in the conglomerate’s insurance business.

Operating earnings, which encompass profits from the conglomerate’s fully-owned businesses, totaled $8.065 billion in the first quarter. That’s up 12.6% from $7.16 billion a year prior.

Profit from insurance underwriting came in at $911 million, up sharply from $167 million a year prior. Insurance investment income also jumped 68% to $1.969 billion from $1.170 billion.

Geico saw a big turnaround in the quarter, returning to a big underwriting profit of $703 million. The auto insurer suffered a $1.9 billion pretax underwriting loss last year as it lost market share to competitor Progressive. Ajit Jain, Berkshire’s vice chairman of insurance operations, previously said the biggest culprit for Geico’s underperformance was telematics.

The company’s railroad business, BNSF, along with its energy company saw year-over-year earnings declines. Operations classified under “other controlled businesses” and “non-controlled businesses” had slight increases from the year-earlier period.

Berkshire’s cash hoard swelled to $130.616 billion from $128 billion in the fourth quarter of 2022. Berkshire also repurchased $4.4 billion worth of stock — the most since the first quarter of 2021 — up from $2.8 billion at the end of last year.

Berkshire’s net earnings, which includes short-term investment gains, increased to $35.5 billion in the quarter from $5.6 billion in the same period a year ago, reflecting a first quarter comeback in Warren Buffett’s equity investments, such as Apple. Though Buffett cautions investors to not pay attention to quarterly fluctuations in unrealized gains on investments.

The company’s latest quarterly results come ahead of the conglomerate’s annual shareholders meeting, an event known as “Woodstock for Capitalists.”

Berkshire Class A shares are up 4.9% this year through Friday’s close, lagging the S&P 500’s 7.7% advance. However, the stock is less than 3% below an all-time high.

— CNBC’s Yun Li contributed reporting.

Follow CNBC’s livestream of Berkshire Hathaway’s 2023 annual meeting starting live at 9:45 a.m. ET Saturday here.

Follow live highlights and updates of the meeting here.

Berkshire Hathaway‘s annual shareholder meeting this weekend is kicking off with a shopping extravaganza.

Called the “Berkshire Bazaar of Bargains,” the shopping event is a tradition at the yearly convention. With over 20,000 square feet of showroom space and more than 50,000 items of inventory, the exhibit hall features goods from a myriad of the conglomerate’s holdings.

This year, shareholders can snap up Warren Buffett-themed plush dolls from Squishmallows for the first time. They can also snag Buffett-themed apparel from Brooks Sports, as well as Berkshire chocolate coins from See’s Candies.

The event is held in downtown Omaha at the CHI Health Center. Only shareholders can participate at the event, and claim the discount.

CNBC and CNBC.com will exclusively cover the annual meeting starting Saturday at 10 a.m. ET.

Berkshire got into Squishmallows through its acquisition of Alleghany, which closed in the fourth quarter of 2022. While Alleghany’s main business is insurance, the company is also a conglomerate. It owns a few non-financial businesses, including Jazwares, which is a U.S. toymaker with brands like Pokémon and Squishmallows.

See’s Candies

The sweets at See’s Candies again drew a big crowd at the “Woodstock for Capitalists.” The “Berkshire Box” of chocolate featuring a dancing Buffett on the package was a popular item at the booth. So was chocolate walnut fudge, a favorite of the Oracle of Omaha. Buffett said See’s Candies sold 11 tons of peanut brittle and chocolates at last year’s event.

Berkshire Hathaway shareholders attending this year’s meeting will want to know more about the company Warren Buffett once called his “favorite child” – the auto insurer Geico.

With tens of thousands of shareholders in attendance, Berkshire’s annual “Woodstock for Capitalists” will be held in Omaha, Nebraska, on Saturday, the second in-person gathering since 2019. (CNBC’s exclusive coverage of the event starts that day at 10 a.m. ET.)

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Geico, viewed as the crown jewel of Berkshire’s insurance empire, has found itself in a bit of a trouble recently after losing market share to its best competitor, Progressive, in 2022 with a widening gap in underwriting margins and growth, according to an analysis from UBS. Geico suffered a $1.9 billion pretax underwriting loss last year.

“I think it’s the biggest issue out there at the moment is really Geico,” said Bill Stone, chief investment officer at Glenview Trust and a Berkshire shareholder. “They’ve lost out to Progressive, who did a better job of implementing telematics … I’m certainly interested in a big update on that.”

Telematics programs allow insurers to collect clients’ driving data, including their mileage and speed.

Headquartered in Chevy Chase, Maryland, with more than 38,000 employees, Geico also experienced a 1.7 million decrease in active policies in 2022, after seeing stagnant growth in the previous year.

Ajit Jain, Berkshire’s vice chairman of insurance operations, said the biggest culprit for Geico’s underperformance is telematics.

“Progressive has been on the telematics bandwagon for … probably closer to 20 years. Geico, until recently, wasn’t involved in telematics,” Jain said at Berkshire’s 2022 meeting. “It’s been only the last two years that they’ve made a very serious effort, in terms of using telematics for segmentation and for trying to match rate and risk.”

Geico represents one area of weakness for Berkshire, which overall has been beating the broader market. Berkshire A shares hit a 52-week high Monday, briefly topping $500,000 again. The stock is up nearly 5% over the past month, while the S&P 500 has fallen roughly 0.6% amid the regional banking crisis.

The conglomerate tends to shine in a down market as many use it for downside protection given its diverse businesses and unmatched balance sheet strength.

First love

While Geico is only a relatively small percentage of Berkshire’s sprawling empire, Buffett does have a soft spot for the insurer as it’s one of the “Oracle of Omaha’s” first investments, and perhaps among the most successful.

Buffett learned about Geico from his professor and mentor Ben Graham, who was the chairman of the board at the insurer. In 1976, Buffett invested at $2 per share in Geico when it was in financial trouble, and Berkshire acquired the rest of the company in 1995.

“It was sort of Buffett’s first love,” said David Kass, a finance professor at the University of Maryland’s Robert H. Smith School of Business. “I think he has a strong emotional and sentimental attachment to it.”

Kass recalled Buffett referring to Geico as his “favorite child” during a meeting with his students in 2005.

Claims cost Inflation

Other than closing the gap in usage-based technology, investors also want to know if Geico is taking steps to offset loss cost inflation, triggered by a surge in prices of used cars, new cars and parts.

Personal auto insurers have been plagued by a high degree of claims cost inflation, with many having posted first-quarter 2023 loss cost increases of more than 20%, said Catherine Seifert, Berkshire analyst at CFRA Research.

To be sure, Berkshire does expect Geico to return to an underwriting profit in 2023 after obtaining premium rate increase approvals from a few states, Buffett said in his 2022 annual letter.

As investors navigate another uncertain year in markets, actively managed funds could add differentiated performance to their portfolios – if traders choose carefully. 

Actively managed funds have historically underperformed passive strategies, but 2022 was a better year than most for stock pickers. Only a slight majority of large-cap equity fund managers lagged their benchmarks last year, according to S&P Global’s SPIVA U.S. Scorecard. The firm noted that it was the lowest underperformance rate for the category since 2009. 

To be sure, that’s hardly a ringing endorsement. Investors can easily rack up high fees, as well as capital gains taxes, that make many actively managed funds a poor alternative to passively managed strategies that can mimic a benchmark at a lower cost. 

Still, actively managed funds can have a better chance of outperforming during periods of volatility. Plus, they beat passive strategies in some lesser-ventured categories for investors besides U.S. large caps, according to S&P’s research. 

One actively managed exchange traded fund called JPMorgan Premium Equity ETF (JEPI) has a 9.59% yield, driving investor interest in the ETF. It currently has more than $7 billion in inflows this year, according to FactSet data.

For Jennifer Bellis, private wealth advisor at U.S. Bank Wealth Management, it depends on what the investor is trying to accomplish. Actively managed funds can help diversify portfolios, but investors will have to do their due diligence, she said.

“It’s more about looking for the right manager and the right strategy,” Bellis said. 

Here’s how investors should go about deciding whether they should include actively managed funds in their portfolio – and what they should look for when deciding.  

A good track record is key

For investors evaluating actively managed strategies, a manager’s track record is the first place to start. A strong record of performance going back three, five and 10 years can show you how the funds and their methodologies have performed across different market cycles – especially when different investing styles have fallen in and out of favor. 

“Everyone can have an up year,” Bellis said. “So what you want to do is research the fund, the manager, and look for a track record. Ideally, a 10-year history look back is what you’re looking for.” 

Investors can also review managers and their teams, as well as their tenures at the fund. They can also give the fund’s holdings a careful review to assess how the choices stack up against their benchmarks. A fund that mirrors an index too closely may not generate any differentiated alpha, and may look like passive investments. 

Also, even successful managers can have a down year, as past performance is not necessarily an indicator of future success. 

Look for lower fees

Of course, investors will have to evaluate whether an actively traded fund is right for them. 

For newer, lesser capitalized investors, passive instruments could give them the opportunity to build wealth at a far lower threshold to entry – instead of the typically higher fees and capital gains taxes, as well as the research, that come with active managers. 

Actively managed funds typically charge an expense ratio between 0.5% and 1%, but the cost can climb even higher than 1.5%, according to Investopedia. Meanwhile, passive index funds average about 0.2%. Other charges that could be tacked on include 12b-1 fees that are marketing costs. 

“Those fees aren’t necessary,” Bellis said. “So, you want to make sure that you’re reviewing the prospectus to make sure that you don’t have those front- and back-load fees because there’s plenty of funds that don’t have them. There’s no reason to pay for them.”

Check for diversification

Investors will also have to evaluate where they want to apply active strategies in their portfolio, such as emerging markets or small caps. 

“Those markets are so broad, and there’s so many ideas within them that I think an active manager who is following those markets and looking through fundamentals can exploit some of the inefficiencies or find interesting ideas,” said Kathy Carey, director of asset manager research at Baird. 

Of note, small caps had the lowest underperformance rate last year among U.S. equities, according to S&P Global’s scorecard. Just 40% of active funds in domestic small caps underperformed.

Carey also said investors seeking exposure to more specific emerging markets ideas outside of China might have better luck with an actively traded strategy, Baird’s Carey said. 

Other interesting strategies within actively managed funds include long-short and total return strategies, according to Bellis. A long-short strategy is favored among hedge funds that seek to take bets on favored stocks, while betting against stocks that could fall. A total return strategy focuses on generating income for investors. 

Baird’s Carey said investors can evaluate where active strategies could add differentiation to their portfolios. 

“Active managers, again, have the opportunity to try to figure out where the market is going.” Carey said.