ETFs and macro factors - the death of stock picking?
So I've been reading a couple of articles which basically say that equity markets are so driven nowadays by macro factors such as Fed decisions, this has lead to much higher equity correlations and as a result stock picking - especially shorting - is now much harder as prices are much less driven by fundamentals.
A quote from the WSJ.
"The market turmoil has battered many investors over the past few years. But for stock pickers like Neuberger Berman LLC's David Pedowitz, it has made their entire investing approach feel like an exercise in futility.
Mr. Pedowitz buys and sells stocks based on research and analysis of individual companies. His investment strategy, he says, has been upended by a tidal wave of "macro" forces—big-picture market movers like the economy, politics and regulation.
More and more investors aren't bothering to pore through corporate reports searching for gems and duds, but are trading big buckets of stocks, bonds and commodities based mainly on macro concerns. As a result, all kinds of stocks—good as well as bad—are moving more in lock step."
http://online.wsj.com/article/SB10001424052748704…
Some related articles:
http://budfox.blogspot.com/2010/11/stock-picking-alpha-in-life-or-death.html
http://www.zerohedge.com/article/Barclays-quant-commentary-worst-returns-environment-disciplined-stock-pickers-60-years
Just wondering what people thought about this? Is this a temporary thing, or permanent? If permanent what does this mean for fundamental long/short HFs?
Hardly anyone is able to make stock picks consistently b/c stocks move with the overall stock market. You can't time the market consistently, either. I think that asset manager made good use of the word "futile".
The best way to build a portfolio today is lost on most people...stock picking is dead, especially the larger the cap and the more developed the market is. US Build your portfolio around L/S alternative assets like managed futures and you'll make much smoother, consistent, and better risk-adjusted returns. You'll get around the average returns of stocks with way less risk. Even if XYZ asset manager can get some alpha through good stock picks, it's not going to be much and you're going to correlate to the broader market too much for your alpha to matter.
Yeah I agree. For my paper trading account, I determine buy/sell positions by picking stocks with good news and in 3 months, my return has been 12~% which is not bad for not digging through company financial statements IMO
Haha
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