May 20, 2019 - Economy

Stock pickers are having their second-best year since the crash

Data: Bank of America-Merrill Lynch; Chart: Axios Visuals
Data: Bank of America-Merrill Lynch; Chart: Axios Visuals

Less than half of actively managed funds are beating their benchmarks this year, but that's the second-best rate since the financial crisis, according to data from Bank of America-Merrill Lynch.

Why it matters: Stock pickers have performed much better against their respective Russell indexes the last few years than they had in the years immediately following the crisis. However, they've had significantly less money to invest and less competition.

  • In 2018, mutual funds saw the highest yearly outflows on record, and Moody's expects passive investing vehicles to hold more assets than actively managed funds by 2021.
  • Around 15% of ownable shares of S&P 500 companies are now held by passively managed funds, BAML's data shows.
  • Currently, 44% of funds in the U.S. are passively managed, vs. 56% actively managed, but the passive share has more than doubled since 2009.

Some good news for active managers: "Stock-picking is making a comeback," notes Savita Subramanian, BAML's equity and quantitative strategist. "For the first time post-crisis, stocks are now more differentiated (less correlated with each other) than sectors are with one another, suggesting picking stocks matters more than picking sectors."

  • "Persistently better performance may help stem outflows from active."

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