For the first two weeks of 2019, U.S.-listed ETFs experienced asset growth of over $15 billion, adding to a near record $315 billion during 2018.
The amazing, almost uninterrupted bull market in stocks from 2009 to mid-2018 helped launch hundreds of new passive strategies, but results show that handily beating an index even during up trending market cycles is not so easy.
So what happens this year if markets turn south or chop up and down? In the absence of the market hitting new highs every quarter, beating a passive strategy seems to be more attainable, assuming one has the right methodology and tools.
The current market offers the opportunity to prove the value of active managers vs. passive products, that would re-establish the credibility of a whole industry and contain if not reverse the massive flow of AUM from mutual funds to ETFs that was a common practice over the last few years.
The key is capturing the “performance dispersion“ across stocks and sectors. Last year the S&P 500 was down 6.4%. The 100 best performing stocks recorded an average gain of 16.6% and the 100 worst performers an average loss of 36%. Intelligent stock picking aided by proper technology and data tools would have helped you identify and ride winners longer and avoid or sell out of the losers to protect profits.
“Trend Capture Analytics” can help to identify a large part of the best 50% and avoid most of the worst 50% of securities in a given universe. The methodology is not 100% infallible, but will capture a high majority of the strongest up and down trends, providing a powerful complement to fundamentally driven strategies.