Roughly Half of Stock Pickers Beat the Market Downturn This Year

Everyone’s taking a licking in this market, except, believe it or not, stock pickers.

Through the first six months of the year — which most remember as the Hindenburg disaster playing out over 182 straight days — 49% of large-cap domestic equity funds outperformed the S&P 500, according to S&P Dow Jones Indices data reported by The Wall Street Journal on Thursday. If the pace keeps up, long-derided active managers will post their best year since 2009, leaving the rest of us wishing they’d share a few tips.

Pick-up Artists

The pop from the pandemic tech bubble has been blaringly loud: The S&P 500 cratered 20% on a total returns basis on the year through the end of June, marking the worst first six months of a year since 1988, according to Dow Jones Market Data, and a complete reversal from the previous year’s 29% market climb over the same period (oh how we yearn for the we’re-in-this-together glory days of post-vaccine optimism).

While most wept, smart stock pickers saw opportunity. Here’s how it happened:

• Just like the last time stock pickers got lucky in 2009, the market in the first half of 2022 displayed high levels of dispersion, which measures variations in the returns of the index’s stocks. While Covid darlings like Zoom and Peloton crashed, energy stocks like Valero and Occidental soared — rewarding savvy stock pickers.
• As the Fed’s steady march of interest rate raises slowed money flowing into equity markets , insightful stock pickers put their money on the right winners instead of the wrong losers.

Up is Down: Still, there’s a reason stock pickers have become the Rodney Dangerfield of Wall Street and get no respect. While even novice Robinhood traders could stumble into stock market success last year, a full 85% of actively managed large-cap funds underperformed the white-hot S&P 500. In fact, a minuscule 5% of large-cap US funds have outperformed the S&P 500 over the past 20 years through June, according to the S&P data. So it may be worth remembering that even in stock pickers’ best year in almost 15 years, just over half of them still lost.