Net Positions – Why Are Six Stocks Leading This Rally?
In this Net Positions, Jim Bianco takes a look at the six stocks leading the rally.
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- Bloomberg View – A Few Big Stocks Don’t Tell the Whole Market Story
Investor nervousness over concentrated gains in the markets is nothing new. The FANG stocks — Facebook, Amazon, Netflix and Google — accounted for a large part of the S&P 500 gains in 2015, as well. AQR’s Cliff Asness looked at the impact of individual stocks on the S&P 500 from 1994 to 2014 and compared those results to the 2015 FANG-driven market. Asness showed what the impact on overall market performance would have been if you removed the best performing stocks each year
Again, as noted above, there is no single statistic that measures the concentration of returns. This story uses a different set of statistics and comes to a different conclusion.
There is not a single clean metric to show if the stock market’s returns are concentrated in a few stocks. That is why we use several charts above to show the S&P 500’s gains this year are the most concentrated since the tech bubble of 1995 to 2000.
To illustrate, a portfolio holding 86% cash and a market weighting of the six FAANMG stocks in the other 14% would be up 2.60% this year. Many fully invested, highly diversified funds have done worse.
2017 investment committee meetings can be condensed into two topics:
Simply put, managers will have a very tough time outperforming the market unless they are correctly positioned in the FAANMG stocks. While this simplifies investment meetings, managers are essentially living and dying by these six stocks.