Tag Archives: stock selection
Performance Trickery, part 3
Success is hard to come by for active managers, as readers of our SPIVA reports know well. Sometimes what appears to be stock selection skill is in fact simply a byproduct of style drift across the capitalization scale. A majority of large-cap active managers outperformed the S&P 500 only 3 times in 19 years of…
- Categories Equities, S&P 500 & DJIA, Strategy
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Sector Analysis of the S&P MidCap 400®
U.S. mid-cap equities – as represented by the S&P MidCap 400 – outperformed both their larger and smaller counterparts since the early 1990s. In decomposing relative returns, sector analysis can be useful to understand the drivers of performance. For example, the S&P MidCap 400’s underweight position in Information Technology at the start of the 21st…
- Categories Equities
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The Height of the Hurdle
Indexing provides many rewards, including a reduction in volatility. Asset owners should demand higher returns to justify the volatility that active management entails. For managers who put their stock selection skills to the test, it is worth understanding the height of the volatility hurdle in managing a portfolio’s risk/return profile. We can illustrate this by…
The Worst of Both Worlds
For active managers, investment results are partly a function of skill and partly a function of the environment in which that skill is exercised. Even perfect foresight has only conditional value. Imagine, for example, a manager who can always identify the top quintile of performers in a given market. If the top quintile outperforms the index as…
The Sources of Volatility and the Challenge for Active Management
If we needed a reminder of the continuing volatility of the world’s financial markets, the first weeks of 2016 obliged us by providing one. What’s often overlooked, especially when volatility spikes, is that there are two distinct sources of volatility. Understanding them can not only enhance our appreciation of market dynamics, but also provides some important insights for…
- Categories Equities, S&P 500 & DJIA, Strategy
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Dispersion and Correlation: Which is “Better?”
We recently introduced the concept of dispersion, which measures the average difference between the return of an index and the return of each of the index’s components. In times of high dispersion, the gap between the best performers and the worst performers is relatively wide; when dispersion is low, the performance gap narrows. Today’s dispersion…
Stock Picker’s Market?
This morning’s Wall Street Journal cites an adviser who opines that “the current stock market environment favors…active fund managers, who pick individual stocks in an attempt to beat broad market indices.” This immediately raises the question of how to define a stock picker’s market, and how to determine whether today’s conditions are more auspicious for…
- Categories Equities, S&P 500 & DJIA, Strategy
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