Tag Archives: dispersion

Right Conclusion (maybe), Wrong Reason (definitely)

This morning’s Wall Street Journal joined (actually, re-enlisted in) the chorus of those arguing that 2014 would be a time for stock pickers to “shine.”  The lynchpin of the Journal‘s case will be familiar to advocates of a “stock-picker’s market.”  That argument is that since correlations in the U.S. equity market are declining (perhaps as Read more […]

Don’t just do something, sit there.

At the beginning of this year, we suggested that 2013 might well have been a another tough year for active managers. Judging from the response received at the time, this expectation was somewhat controversial: the more common refrain was to point to falling correlations during 2013 and predict a return to “stock-pickers’ market.” In such an environment, Read more […]

Some Inconvenient Truths

Today’s Wall Street Journal brought the latest in a string of articles suggesting that we have entered a period of particular opportunity for active investment management — a so-called “stock-picker’s market.”  Because the average correlation of stocks within the S&P 500 or other major indices has declined, it’s argued, “active managers are going to do Read more […]

Why Size Matters

This morning’s Financial Times revisits the argument that smaller funds generally have a performance advantage over larger funds.  One contention advanced in favor of this view is that as funds grow, they “have” to hold more large-cap stocks, and that this large-cap weighting hurts overall performance: “Outperformance in large-cap companies is harder to achieve because Read more […]

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 Read more […]

Low Dispersion Implies Low Value Added

Understanding a market’s dispersion provides important insights into its internal dynamics and the opportunities and pitfalls that might await both active and passive investors.  Dispersion 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 Read more […]

Voting with Their Feet

Despite superb returns for the equity markets across the developed world, 2013 was a tough year for active managers.  While the average hedge fund recorded fairly solid gains over the year, such performance paled in comparison to the rampant equity markets.  It was also a year that saw historic lows for the potential returns available Read more […]

Two Dimensions of Risk

Investors have long regarded the market’s overall level of volatility as an indication of its riskiness.  The S&P 500 VIX Index, in particular, is often referred to as a “fear gauge” for U.S. equities since it tends to rise when investors are nervous and to fall when the markets are quiescent. Although S&P 500 VIX Read more […]

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 Read more […]

Where’s my free lunch?

Ever since Harry Markowitz published his June 1953 paper on portfolio selection, investors both institutional and retail have subscribed to the theory that diversification – and its use in combination with mean-variance optimized allocations – universally widens and almost always improves the possibilities of risk and return. At its core, the theory states that an Read more […]