Stock Pickers' Weak Performance

Sebastien Callebaut -

Each Year, Stock Pickers Come With Lofty Predictions

The January meme-stock mania and a rally in smaller and cheaper stocks boosted optimism that active investing would make a comeback this year. However, as the year comes to a close, most professional stock pickers are finding themselves at the same spot again: lagging the S&P 500 index.

  • It's nothing unusual for money managers to be optimistic in January and predict that the coming year will be a "stock picker's market" according to Craig Lazzara, managing director at S&P Dow Jones Indices
  • S&P Dow Jones Indices conducts an annual study on active versus passive management. Currently, around 83% of large-cap funds underperformed the S&P 500 after ten years

2022 Is Going To Be A Year For Stock Pickers

The tune hasn't changed for 2022 and money managers are quick to predict the strategies to adopt in 2022. Some predict small-caps will outperform, others see a partial come-back in Chinese equities and others advice their clients to pile into value stocks.

“We think that any way you look at it, value stocks have the advantage versus the overall market and growth stocks, [...] That’s within sectors, across sectors, large-cap or small-cap.”  John Thorndike, cohead of asset allocation at GMO

Yet, no one knows whether the Apple and Google of this world will continue to push the markets forward or if small-caps stocks will experience a renaissance.

BENCHMARK'S TAKE

  • Active investors often display a steady amount of confidence in their picks and their ability to outperform indices
  • Indices in themselves aren't static investment solutions as their constituents are selected based on a set a pre-defined rules
  • These constituents are then rebalanced (frequency is defined by the index' rules) and some new stocks make their entry into the index while others are pushed out
  • Of course, the performance of indices in 2021 was stellar and may not repeat itself each year. Yet, we still believe that investors should be cautious when picking stocks and not be too quick in dismissing passive investment strategies

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Aditya Vyas on Unsplash.