Even though market volatility and correlations have declined, active stock pickers are still having a hard time beating indices and broad exchange traded funds.
After the string of financial crises over the past few years, the markets experienced large swings that saw equities move in lockstep, weighing on stock pickers and fueling the move toward broad indexing investments.
The battle between stock picking and indexing has escalated as investors turned to ETFs that offer lower fees and exposure to broad indices. [Four Hidden Risks in Bond ETFs]
“Correlations are dropping but so is volatility. Both of these things happening at the same time mean the benefit from stock selection doesn’t grow,” Art Steinmetz, chief investment officer at Oppenheimer Funds, said in a CNBC report. “Differences across stocks are still going down because overall volatility is going down.” [Inverse VIX ETFs Rise 170% as Volatility Hits Five-Year Low]
According to JPMorgan Chase, only 37% of active managers are beating their benchmark indices while 63% have missed their target. In contrast, only 7% have beat the benchmarks by over 2.5%.
“There’s a lot to be said for buying the indexes and ETFs and setting it and forgetting it,” Nadav Baum, executive vice president at BPU Investment Management, said in the article. “Stock picking is a tough game.”