Active stock pickers are having one of their best years since the financial crisis, and these money managers can thank rising U.S.-China trade tensions for their better fortunes, according to analysts at Goldman Sachs.
The analysts, led by Arjun Menon, wrote in a Wednesday research note that 42% of large-cap active mutual funds are outperforming their benchmarks so far in 2019, well above the 34% rate averaged during the last decade.
Menon argued that escalating trade tensions between the U.S. and China are one reason for this improved performance, noting that mutual funds have been underweight the 20 S&P 500
companies with the highest sales exposure to China.
These stocks have fallen 15% since May 5, versus just a 3% decline for the broader market, Menon wrote.
Mutual-fund managers typically track their performance relative to a benchmark index, like the S&P 500. Over the past decade or more, so-called “active” managers, who engage in labor-intensive research to select the stocks or sectors they think will outperform these benchmarks, have on average been unable to surpass the performance of “passive” funds that seek to mimic benchmark performance, at a lower cost.
“In addition to improved returns, active funds have also witnessed reduced outflows this year,” wrote Menon. “Active U.S. mutual funds have witnessed $81 billion of outflows year-to-date, compared with more than $100 billion of outflows during the first five months of the past four years.”
Other than trade concerns, which have led to divergent performances between stocks recently, active mutual-fund managers have also benefited from smart bets on the consumer discretionary sector, which has outpaced the S&P 500 this year, rising 17% versus 14% for the broader market.
On an individual stock level, mutual funds have been most overweight Visa Inc.
and Salesforce.com Inc.
all of which have outperformed the S&P 500 year-to-date.
When looking at active equity funds more broadly, to include hedge funds and exchange-traded funds, active managers performance looks even better, according to an analysis published by Bank of America Merrill Lynch last week, which showed that 48% of large cap active funds beat their benchmarks as of the end of April.
“Good news for active managers: stock-picking is making a comeback,” wrote Savita Subramanian, equity and quant strategist for BofA. “For the first time postcrisis, stocks are now more differentiated (less correlated with each other) than sectors are with one another, suggesting picking stocks matters more than picking sectors,” she said.
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