Over the summer, it appeared that dispersion—how returns of individual stocks differ from the overall average— in the stock market increased at times from recent trends of stocks moving in the same direction together. One might expect that greater dispersion would result in better performance for active stock pickers than for passive index-driven investing.
Jason Zweig of The Wall Street Journal looked at data reported by Morningstar for the first half of 2024 and found that only 18.2% of actively managed equity mutual funds and ETFs that compare themselves to the S&P 500 index outperformed it. That is down from 19.8% for all of 2023. He also found that correlations—a measure of stocks moving up and down together—today were actually inline with historical correlations according to Dimensional Fund Advisors. Essentially the data showed that dispersion had not meaningfully changed from historical levels. That fact, along with the concentration of the S&P 500’s market capitalization and performance driven by fewer large technology stocks likely made active stock picking outperformance as difficult as ever.
Parkside remains an index-driven portfolio strategy firm with an investment process based on objective, quantitative market data. The data in this WSJ article concerning active equity performance further supports our approach.
We would be happy to discuss Parkside Advisors’ portfolio strategy and investment process with you—please contact us.
