Damn It Feels Good to Be a Stock Picka

Reuters notes that now is a good time to be a stock picker. While active managers usually lose to the market, it’s not happening this year. Of U.S. fund managers, 57% are beating their benchmarks this year. That’s their best showing in four years.

Implied correlations – a measure of how closely the performance of individual stocks mirrors that of the index itself – have fallen to their lowest since October 2007 after peaking in 2011, according to a research note from Cantor Fitzgerald. That means that instead of the returns of most stocks clumping close to the index returns, there is a much broader spread on how individual shares are performing.

That’s a sign that investors are picking winners and losers. It also suggests the bull market – which has carried the S&P nearly 170 percent higher since March 2009 – is starting to show its age. The S&P 500 has set 33 new highs this year after failing to reach record levels since 2007. Now there are fewer beaten-down stocks that offer the chance for a quick pop higher.

Instead of searching for screaming bargains, fund managers are turning their focus to well-run companies that have sustainable advantages and may hold their value during a downturn, however unlikely that may seem at the moment.

Of the S&P 500, the most stocks are positive YTD since at least 1980. This rising tide has lifted a heckuva lot of boats.

Posted by on November 4th, 2013 at 5:30 pm


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