Pickup artists
Some stock pickers improved their spotty record last year, and some analysts think conditions are right for further gains in 2018.
Last year, for example, nearly 58 percent of small-cap value managers beat the index, a big improvement over the 10 percent who did so in 2016.
For years, mutual funds run by managers looking to beat the market have struggled to prove their worth. In a world where stocks often moved together in herds, it was difficult for stock pickers to produce better returns than index funds, whose lower expenses give them an automatic head start.
Jefferies strategist Steven
DeSanctis expects active managers to improve in 2018, though he said something similar a year ago and acknowledges that he “just might be an eternal optimist with this theme.”
DeSanctis expects rate hikes by the Federal Reserve this year to weigh on utility and real-estate stocks, and active managers own fewer of these than index funds do.
Market volatility, which has been at historic lows, may also pick up this year, DeSanctis says. That should provide stock pickers with more opportunities to buy low.
Still, the overall trend remains in index funds’ favor. Nearly six in 10 managers failed to keep up with their respective index during 2017.