Pros Chase Performance Off a Cliff

The performance chase among active stock managers. It’s never not hilarious. Everyone’s overweight the thing that’s been working and underweight the thing that isn’t. Then the tables turn and the whole thing sails right over the cliff’s edge.

JPMorgan via Business Insider (emphasis mine):

67% of mutual funds underperformed their benchmark in the third quarter, with more than one-third, or 34%, underperforming by at least 250 basis points, or 2.5%.

Those stats are based on a universe of more than 2,300 active funds with more than $5.5 trillion in assets…

“The Sector positioning explains recent active manager underperformance. In 3Q mutual funds have been favoring Healthcare (+2.0% overweight) with their largest single overweight in Pharma/Biotech (+1.1%) while most underweight Staples (-2.0%). During the quarter, Healthcare significantly underperformed (-11%) while Staples faired much better (-0.9%).

If you went into Q3 underweight healthcare, you weren’t in the cool club. If you went in overweight consumer staples, you were at risk of being stuffed into a locker by the alpha jocks in the hallways of Market High.

Which is, of course, why the former stopped working and the latter held up better. When volatility struck, it was the cool club stocks that were the most over-owned and that needed to be vomited up to the redemption gods.

Rinse and repeat. Again, this will never not be hilarious.


Fund managers everywhere are getting crushed (Business Insider)

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