Even the active managers are saying there’s no point picking stocks right now.
Here’s a graph and commentary from Matt Rothman at Barclays Capital:
I just think it shows the herd running scared as a mob. But I would, wouldn't I?
It was hard to be a stock picker in the market for the last two months as the last two months have seen historically low levels of dispersion in stock returns.
As shown in Figure 2, the cross-sectional correlation across all stocks in the market was at its second highest level last month (measured back to July 1950) and recorded its third highest level this month; there have never been to two months back-to-back with anything approaching these levels.1
To belabor the obvious and put this in perspective, current levels of correlation are higher than in October 1987, anytime during the Fall of 2008, either the run-up or the bursting of the Internet Bubble, or after 9/11.
This observation holds across sectors, with the correlation of stocks within Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Technology and Utilities sectors all being at or very near historical highs.
Index trackers usually beat active managers, of course, so this sort of finding could only really excite a stock picking professional.
That said, for my sins I do indulge in a bit of individual share investing with my side portfolio and it has proved even more pointless than usual recently.
Generally, if anything does very well I’m just selling up and rolling the proceeds into the market, given how cheap shares look overall.
(Source: Investing Contrarian)
