Stock pickers again followed the market in the 2020 roller coaster

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WSJ.com: Markets

In a year when stock picking was best, stock picking companies again fell short.

In 2020, 60% of US large-cap stock selection funds lagged the S&P 500 benchmark, according to new data from S&P Dow Jones Indices.

The market turmoil last year was unprecedented: with the spread of Covid-19, the US benchmark index lost a third of its value in less than five weeks in February and March before rising in August to hit new highs and the year double digit exit profits.

However, the failure of most stock-picking funds to outperform benchmarks was nothing new: 2020 marked the eleventh year in a row that the majority of actively managed US large-cap funds, according to S&P Dow Jones Indices at the end of the year behind the S&P 500, the scorecard for active management was left behind.

One factor that may have contributed to the market being tough to beat over the past year was the resounding performance of large tech stocks, which are a powerful force on the S&P 500. The 16% rise in the US stock index over the course of the year was driven by an 81% rise in Apple shares Inc.

and a 76% increase in Amazon.com shares Inc.

An 81% increase in Apple stock in 2020 helped the S&P 500 gain 16% over the year. An Apple Store in San Francisco in February.


Photo:

David Paul Morris / Bloomberg News

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“The dominance of really big stocks is difficult for active managers,” said Craig Lazzara, global head of index investment strategy for S&P Dow Jones Indices. “You would have to be in a bigger position than most active managers like to hold the overweights in the biggest stocks,” he said.

At the end of December, Apple made up 6.7% of the S&P 500 while Amazon made up 4.4%.

This year has been a different story so far, with technology stocks lagging the market as investors buy stocks of energy and financial companies to bet on broader economic growth. While the S&P 500 was up 4.9% in 2021, shares of Apple and Amazon fell.

According to Morningstar Direct, 2020 performance was mixed among the three largest actively managed US large-cap funds late last year.

Class A Shares in American Funds The Growth Fund of America – a $ 256 billion fund at the end of December – returned 38% in 2020, outperforming the S&P 500’s total return of 18% and the total return of the S&P of 33% 500 growth index.

The oldest share class in the Fidelity Contrafund Fund, which Morningstar has also classified as a growth fund, returned a little under 33%, outperforming the S&P 500 but lagging the growth index. In contrast, Class A shares of American Funds Washington Mutual Investors Fund returned 7.7% annually, lagging the S&P 500.

Active managers did slightly better when selecting mid-cap and small-cap stocks, with 51% and 46% of funds in these categories lagging their respective S&P benchmarks.

Stock picking may have a better chance of success in areas like small caps, where companies are often less scrutinized than their larger counterparts, said Sarah Samuels, director of investment manager research at NEPC, an investment advisory firm.

“Smaller-cap names are less well covered by analysts,” she said. “It’s not that efficient, so you should be able to create more value.”

Tech stocks have lagged the market so far this year, with Amazon stocks falling while the S&P 500 rose 3.8% in 2021. Amazon packages were delivered in New York last October.


Photo:

Victor J. Blue / Bloomberg News

Stock selection strategies targeting fast-growing companies or low-priced stocks have also been relatively bright spots over the past year. More than half of large-cap growth funds and large-cap value funds – 62% and 67%, respectively – outperformed their benchmarks.

Long-term, S&P Dow Jones Indices found that most US equity funds, regardless of their category, do not outperform the relevant equity index. Of the U.S. large-cap funds that were in business 20 years ago, 6% are still operating and have beaten the S&P 500 during that time, according to the report.

At the end of 2019, $ 4.6 trillion in passively managed funds was indexed to the S&P 500, while $ 6.6 trillion in actively managed funds was compared to the index.

Write to Karen Langley at karen.langley@wsj.com

Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

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