Stocktake: Beating the market was ‘nigh-on impossible’ in 2019

Few active managers are expected to beat the S&P 500 in 2019. That’s not unusual, given that S&P Dow Jones Indices’ SPIVA scorecard routinely documents that managers underperform. Still, a confluence of factors meant 2019 was especially tricky for managers, notes S&P’s Chris Bennett.

Why? One way of beating indices is by overweighting or underweighting certain stocks. However, the five biggest stocks in the index averaged gains of 51 per cent – bad news for managers, given most are uncomfortable overweighting a stock that’s already a large component of the index.

Similarly, the biggest sectors outperformed the smallest sectors; if you didn’t overweight technology, you had little chance of beating the market, given the sector gained over 50 per cent.

Commodities

Thirdly, investors who ventured outside the S&P 500 were penalised for doing so. The large-cap US market led the world, with smaller US stocks, international equities, fixed income, and commodities all trailing in its wake.

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Recent data from Société Générale's Andrew Lapthorne echoes this analysis, Lapthorne noting that just one in five of 16,000 global stocks outperformed the S&P 500 over the last two years.

Markets are always “hard to beat”, says Chris Bennett. However, 2019’s range of circumstances “made ‘hard to beat’ become nigh-on impossible for the S&P 500”.