In a year prime for stock picking, stock pickers came up short—again.
In 2020, 60% of U.S. large-cap stock-picking funds lagged behind the benchmark S&P 500, according to new data from S&P Dow Jones Indices.
Last year’s market tumult was unprecedented: As Covid-19 spread, the benchmark U.S. index lost a third of its value in less than five weeks in February and March, before leaping higher to set new highs in August and ending the year with double-digit gains.
But the failure of most stock-picking funds to beat benchmark indexes was nothing new: 2020 was the 11th consecutive year in which a majority of actively managed U.S. large-cap funds underperformed the S&P 500, according to S&P Dow Jones Indices’ year-end scorecard on active management.
One factor that might have contributed to the difficulty of beating the market last year was the resounding performance of big tech stocks, which exert a powerful force on the S&P 500. The broad U.S. stock index’s 16% gain for the year was propelled by an 81% surge in shares of
Apple Inc.
and a 76% climb in shares of
Amazon.com Inc.
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“The dominance of really large stocks creates difficulties for active managers,” said
Craig Lazzara,
global head of index investment strategy for S&P Dow Jones Indices. “You would have to have a bigger position than most active managers are comfortable with if you were going to maintain overweights in the biggest stocks,” he said.
At the end of December, Apple accounted for 6.7% of the S&P 500, while Amazon made up 4.4%.
This year has been a different story so far, with tech stocks lagging behind the market as investors snap up shares of energy and financial companies in a bet on broader economic growth. While the S&P 500 is up 4.9% in 2021, Apple and Amazon shares are down.
Among the three biggest…
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