Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
The past six months or so have seen a sea change in global stock markets. The announcement of successful vaccination trials in November provided a glimpse of a post-pandemic world and investors have been quick to focus on the likely winners and losers in that environment.
The first group includes many of the companies which had been hit hard by Covid restrictions. Travel, hospitality and retail shares have bounced back strongly. The second group features the shares which offered investors a port in the storm but now look less relatively attractive in a reflationary environment.
The prospect of rising interest rates has reduced the appeal of long-term growth stocks because the value of their future profit streams is lower to investors who can secure higher returns today. This is why the tech giants which drove markets higher before November have underperformed since then and more cyclical shares have done better.
One side-effect of this change in market leadership has been a better performance by so-called active managers. They have struggled to beat the market in recent times because the performance of the index as a whole has been dominated by such a small handful of shares. Much of the growth in markets was accounted for by just a few companies. If managers owned these, they looked clever. But many did not because the shares looked too expensive to a stock picker in search of value.
According to some Bank of America research that was highlighted in the FT today, 70% of active managers outperformed the market in May, making it one of the best months ever. In large part that’s because stock pickers tend to own more medium and small cap stocks. Until recently, that’s been a recipe for underperformance. Now it is paying off.
The rebound by active managers has been dramatic. Over the past year, just a third of managers have beaten the Russell 1000, a broad-based index in the US. So far this year, however, 60% have done so. Please remember past performance is not a reliable indicator of future returns.
One reason that picking stocks is working better this year is that there is a greater difference between the best and worst performing shares - greater dispersion of returns to use the jargon. Also, shares are no longer all moving together in lockstep, up and down at the same time. To put it in investment-speak again, correlations are lower.
For a long time, making money in the markets has been relatively simple (even if this was only clear with hindsight). A big exposure to the US has made sense. And within that, a big exposure to growth sectors like technology has been beneficial.
Perhaps a more discerning approach will pay off from here. This creates opportunities for investors but also makes life more difficult. Picking stock market winners is not easy. You have to anticipate what is coming, which is a lot harder than just following the herd. At times like these you need to tap into the expertise and experience of the best investors.
Our Select 50 list offers investors access to what we believe are some of the best managers around. They are the ones who our fund-selection experts think have the most robust investment processes and the ability to consistently deliver against their objectives.
It’s worth pointing out that not all Select 50 managers will perform well at the same time because they adopt a range of investment styles, not all of which can be in favour simultaneously. However, over the long run, and through the investment cycle, these are the managers we have faith in.
Picking the right managers should also not be confused with putting all your eggs in one basket. The Select 50 has funds in eight different asset class and geographical categories. A well-balanced portfolio of funds will probably include investments in most of these and probably more than one fund in each category.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Select 50 is not a personal recommendation to buy or sell a fund. Overseas investments will be affected by movements in currency exchange rates. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.
Share this article
Where next for Kingfisher shares as Screwfix-owner gives update?
Can the lockdown DIY frenzy sales boom persist in a re-opened world?
Stop worrying about a crash: the bull market has further to run
Should investors really worry about inflation, Covid and US tapering?