Good stock-picking rewarded again25th September 2017
The Financial Times has recently run two articles describing the return of stock picking and active management. This article picks up on research that shows that stock correlations have decreased from 60% in 2016 to 20% this year. In principle, if stock correlations are high the yield from stock picking decreases. If they are low, stock pickers and active managers generally can make money.
We can see in TIM data that our contributor performance has indeed improved. In the last three months, returns on a market neutral basis in the TIM sentiment model have averaged 1.82% compared to 1.71% for market-neutral hedge funds globally. In the US, market neutral TIM contributor returns over the last 3 months were 2.42%, which compares with hedge fund performance in the US of about 0.5% for the same period. On the long side, our contributors averaged 25.37% over the first six months of the year, compared to a rise of 7.35% for the same period in the S&P.
Active managers are performing well in the new environment; hedge fund inflows are exceeding outflows. For TIM users, and their clients, this low-correlation environment is good news. Long may it continue!
Links to the FT articles (subscription required):
- Return of the stockpicker bolsters hedge fund performance
- Correlation crash clears way for stockpickers