Increased Volatility Encourages Stock Pickers

The uptick in market volatility over the past 18 months is leading some individual investors to believe the market has “reached a point where picking the right stocks matters more than throwing money into index-tracking funds,” according to a recent article in The Wall Street Journal.

The article says that Wall Street analysts are attributing a combination of drivers, including a “buy-the-dip” mentality, an accommodative Fed, solid economic indicators and increased share price dispersion.  They also believe the recent increase in U.S.-China trade tensions could provide more opportunities for investors as stocks will trade more independently of each other.

According to Bank of America equity and quant strategist Savita Subramanian, “Stocks last year were mostly in lockstep, rising and falling over the latest determinations on how high interest rates were headed or whether economic growth was flagging rather than based on individual performance,” adding, “you used to make more money being in the right sectors than the right stocks generally. Now you’re making more being long one stock or short another.”

Notwithstanding the trend, the article reports that passive-asset managers still dominate, a backdrop unlikely to change as indexes continue to outperform professional fund managers—citing Morningstar data showing that over the past four years “$855 billion has been pulled out of active funds while $2 trillion has flowed into passive funds.