Returns/active management

This, from Eric Balchunas, was interesting. We’ve posted many variants of this table/graph, the key message is that the Top 10 stocks delivered 77% of the total return.

That’s…a lot!

As Eric notes, that’s the second largest on record, and the only other time was in 2007, just before the GFC.

Now, that can sound scary, we aren’t using it to suggest anything other than diversify (in our case, with a mix of ex-US equities, and within the US gravitating towards value) but it is also a useful reminder that active management is going to struggle when only 10 stocks (which you’ve got to be overweight!) deliver all the alpha.

We’ve seen that, through the lists of well credentialled managers, across a variety of different styles, who underperformed the benchmark, and by a lot.

Now, we tend to gravitate towards a core-satellite approach (although we do lots of tailoring depending on client needs/wants/philosophies/approaches), and that means having a good chunk of the asset class exposure in low cost ease of implementation vehicles, which guarantee an exposure to this extreme tail skew of winners.

However, we’d also note given such material divergence, having a solid line up of active managers you back seems very reasonable; in other words, leaving the door open to alpha through manager selection.


Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

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