Active managers, after years of suffering through a low-volatility stock market that has made their lives miserable, are finally showing signs of life.
The first half of 2017 saw 54 percent of large-cap managers beat their benchmarks. That number may not sound remarkable on its face but is actually the first time a majority achieved the feat in the first half since 2009, when Bank of America Merrill Lynch first started tracking the performance. Sixty percent beat in the second quarter, the best since the first quarter of 2009.
Low volatility has long been the enemy of stock pickers, and that story hasn’t changed much this year. The most conventional measure, the CBOE Volatility Index, has been mired around multiyear lows for much of 2017. However, several other factors have colluded to make life easier.
For one, fund managers have simply gotten better at sector selection.
They set a record for overweight positions in the red-hot tech sector, which gained 17.2 percent in the first half. They also had higher than normal allocations to discretionary and health care, the second- and third-best sectors. Managers are holding record-low positions in weak-performing staples, utilities and telecom shares, according to BofAML.
Another factor has been correlations, or the tendency stocks have had to move up and down together during the eight-year bull market run. High correlations make it more difficult for active managers to find price discrepancies needed for outperformance, and correlations have come down this year.
Finally, style has helped — 71 percent of value managers and 64 percent of growth managers have outperformed. Core managers, who blend both styles, saw just a 36 percent outperform rate.
Full story by Jeff Cox at CNBC