Avoid Stockpickers’ Favorites

Research shows that the stocks managers love the most don’t do terribly well.

S&P 500 stocks owned in outsize chunks by mutual fund managers have consistently trailed behind the performance of S&P 500 stocks that are least favored, according to research from Bank of America Merrill Lynch. The pattern has been true since 2008 and has become more pronounced over the past three years, as the pace of redemptions has accelerated, said Savita Subramanian, an equity and quant strategist at Bank of America Merrill Lynch.

“The neglected stocks win by default while the over-owned ones get hammered by outflows,” Ms. Subramanian said.

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Performance of the 10 S&P 500 stocks that active managers own most of, relative to their weight in the index, had trailed the 10 stocks that are least owned by a full 13.4 percentage points in 2016, through September 26. In 2015 and 2014, active managers’ favorite stocks lagged the least-owned ones by 12.6 percentage points and 17.8 percentage points, respectively. The most heavily owned stocks by active managers also trailed the S&P 500 in 2015 and 2014 as least-owned stocks bested the broader market.

Posted by on October 17th, 2016 at 11:53 am


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