How to handle the indices roller coaster?
Can the last two years provide an indication of what to expect in the new market regime? What is the right perspective going forward? In 2022 the S&P500 index lost -18.7% and in 2023 gained 24.3%. What is next for the benchmarks? Another bear phase or a sequence of new highs ? Nobody has the answer, but something is for sure, the recurrent persistence of the performance dispersion effect across stocks. The below table shows the dispersion facts for the stocks in the S&P500 index, (top and bottom quartiles).
|S&P 500 index
|Top 25% performers (125 stocks)
|Bottom 25% performers (125 stocks)
This proves that during any phase in the market, either bull or bear, there is a number of stocks, identified as the top 25% performers, that generate profits and beat the benchmark irrespective of the index performance.
What are the logical conclusions of all this?
- Investing in indices and passive products may disappoint in the long run, if the next few years will be hostage of a sequence of up and down waves producing erratic returns.
- The performance dispersion across stocks offers the opportunity to perform if one has access to the market intelligence and the tools to select the outperformers and capture the opportunities.
- So, what fundamental parameters best capture the dispersion?
- As performance dispersion is simply the dispersion of medium term price trends, can advanced trend analytics contribute to identify the winners early by discriminating positive vs. negative trends across the investment universe?
Trendrating performance management platform is designed to answer these questions and to provide the insights that can make a difference in the new market cycle. Our solution is used by 200+ asset management firms to improve risk control and maximize the performance.
Contact us for a brief demo and discover how you also can exploit the broad performance dispersion across stocks and outperform with smarter insights. Gain insights that can help you to leverage your skills.