The line represents the average dispersion for the S&P 500 for the year in question. It’s not a perfect relationship, but it’s obvious that low dispersion reduces the spread between the best and worst managers.
Whether measured relative to passive alternatives or within the active management universe, when dispersion is low, the value of stock selection skill declines.
This article was written by Craig Lazzara, global head of index investment strategy, S&P Dow Jones Indices.
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