Active manager darts hit target in decade’s easiest stock market

Trader Talk

After a decade of futility, active mutual fund managers are having the run of a lifetime in 2021’s can’t-miss stock market.

With leadership in equities moving beyond megacap tech companies — for once — stock pickers are finding a reprieve from the dominance of their index-tracking rivals. Selective bets on undervalued stocks are paying off as unloved value and cyclical strategies fall into favor.

Those pursuing midcap and large-cap strategies have done particularly well, with 56% of large-cap growth managers beating their benchmarks, according to Jefferies’ analysts.

Those pursuing midcap and large-cap strategies have done particularly well, with 56% of large-cap growth managers beating their benchmarks, according to Jefferies’ analysts.

Bloomberg News

The first quarter saw 58% of large-cap active funds outperform their Russell 1000 benchmarks, compared with the 44% historical average, Bank of America analysts wrote in a recent note. For core funds, which blend growth and value, 62% outperformed, the most in the first quarter since 2001 and the third-best since 1991, thanks in part to overweight positions in industrials, financials and materials.

While proponents of active management may want to credit the big quarter to nimble stock picking, the performance is more accurately ascribed to the market backdrop. The first three months of 2021 have served up an especially rich landscape for anyone trying to beat a market-weighted benchmark, with equal-weighted indexes far surpassing their standard counterparts.

“We’re in what used to be called a stock-pickers’ market,” Liz Ann Sonders, chief investment strategist at Schwab, said by phone. “The playing field has gotten more leveled for active investors or active fund managers — maybe not to be able to outperform passive but a more-level playing field.”

Those managers pursuing midcap and large-cap strategies have done particularly well, according to Jefferies’ analysts Steven DeSanctis and Eric Lockenvitz, with 56% of large-cap growth managers beating their benchmarks, helped by big tech names taking a step back while more reasonably priced growth stocks thrived.

“For five-to-10 years, it was hard to outperform if you didn’t own big positions in the megacap tech names,” said Ross Mayfield, investment strategy analyst at Baird. “Now, with the completely changed economic outlook, not only has value come back into favor, but there’s more dispersion among individual names, so it’s not just the big tech stocks dragging the market higher.”

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