Volatility Not Helping Bottom Line
By Saghir Aslam
Rawalpindi, Pakistan

 

(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)

Managers are finding it easier to profit from stock-picking as market endures swings not seen since 2011.

Good news for investors: far more mutual funds are beating the market than last year. The bad news is that stocks are returning one- tenth as much.

According to a Fundstrat Global Advisors LLC survey of 3,265 funds, more than half posted gains that exceeded benchmark indexes in 2015 through March 6, for their best start to a year since 2012. Managers are finding it easier to profit from stock-picking as lockstep moves among shares unwind and the market endures swings not seen since 2011.

“Factors aiding active manager performance are improving in 2015, suggesting the positive start for funds will continue.”

Whether anyone will care is another question. While volatility has been good for active managers, so far it isn’t doing much for the bottom line. The Standard & Poor’s 500 Index, up 1.1 percent this year through Monday after rising 44 percent the previous two, is poised for its worst first quarter since 2009.

Investors pulled more than $10 billion out of mutual and exchange traded US equity funds in January and February, according to data compiled by Bloomberg and Investment Company Institute.

“Benchmarks matter to institutes, like school endowments competing against each other”.

“People are not competing against anyone else. They just want to make money. That’s how mutual fund investors are”.

Managers’ outperformances this year could be tied to stocks’ inclinations to move independently of each other.

The Chicago Board Options Exchange’s S&P500 Implied Correlation Index, which uses options to measure expectations about whether stocks will move in unison, plunged 17 percent this year through March 5, to the lowest level since 2012.

 

 

Underweighting Shares

Funds that outperformed in January and February benefited from underweighting shares of utilities and financials.

These S&P500 groups lost at least 1.7 percent in the first two months of 2015 as the broader index rose 2.2 percent.

Last year, only 25 percent of actively managed equity mutual funds beat their benchmarks, the lowest rate since 1995.

While strategists remain bullish on equities this year, they are predicting returns in US stocks won’t be as robust. The S&P500 will increase 7.5 percent from where it closed Monday to 2,237 by the end of the year, according to the average of 21 equity strategists.

The S&P500, which never went more than three days without a gain in 2014, has twice fallen five straight times since January.

Daily equity moves exceeding 1 percent have jumped 50 percent from last year and shares tumbled 3 percent or more over four different stretches in the first quarter, the most retreats of that magnitude since 2011.

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(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)

 

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Editor: Akhtar M. Faruqui
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