Source: Barron Chinese

Another "golden age" of active management strategies may be coming.

Since the beginning of 2025, the number of stocks that outperformed the S&P 500 index has increased significantly. After the previous two years, the stock market rise has been highly concentrated in a few stocks, which is a focus on outperforming the benchmark index. Investors bring more opportunities.

As of the close of last Friday (February 21), the S&P 500 rose 2.4% this year, and 49% of the constituent stocks rose more than the index's gains this year.

If this continues, it will mark the strongest increase in participation since 2022, according to MarketWatch's analysis of FactSet data. So far, this is also significantly different from the performance of the S&P 500 and its constituent stocks in the past two years.

Less than 30% of the constituent stocks outperformed the market in 2023 and 2024, with the most outstanding performance being a few large-cap stocks such as NVDA. With their help, S&P The 500 Index has increased by more than 20% for two consecutive years.

The number of constituent stocks that outperformed the S&P 500 in early 2025 has increased significantly

Since 1998 and 1999, the S&P 500 has never relied so heavily on a very small number of constituent stocks. the rise.

Financial professionals point out that this change, coupled with the expected increase in individual stock performance dispersion by option traders, may indicate that troubled active fund managers are about to usher in a good day. "The rise in diversification is beneficial to active fund managers," said Ben McMillan, chief investment officer at IDX Advisors. He believes that another "golden age" of active management strategies may be coming soon. .

The Cboe Dispersion Index, which measures changes in short-term expectations of S&P 500 stocks, recently showed an upward trend, which hit a three-year high at the end of January.

Options traders expect the performance of S&P 500 stocks to be more divergent in the next month

According to data from the Chicago Options Exchange Global Markets, usually , as companies release quarterly reports, the Cboe dispersion index tends to decline, but the index has risen instead of falling in the past few weeks.

This situation occurs for several reasons. One is the quality of corporate performance. As Wall Street expected, the number of companies with profit growth began to increase in the fourth quarter, and before that, profit growth had been highly concentrated in the "Big Seven" of technology.

Another reason is the rise in uncertainty in the U.S. market and economic outlook. Investors’ potential risks and returns on Trump’s agenda, whether it is wise for some companies to invest in AI-related infrastructure, and the potential strength of the U.S. economyQuestioning.

Mandy Xu, director of derivatives market intelligence at Chicago Options Exchange, said: "Even amid the continued concerns among investors about artificial intelligence, tariffs and economic outlook, individual stocks are volatile," said Mandy Xu, director of derivatives market intelligence at Chicago Options Exchange. Still very high. ”

S&P Dow Jones Indices data show that over time, active-managed funds often struggle to outperform the benchmark index, which has become More prominent.

In the past two years, if active fund managers have not placed heavy bets on the Big Seven such as Nvidia or other popular momentum stocks such as Palantir Technologies (PLTR) and Vistra (VST), then it is almost certain What's right, they all underperformed the S&P 500.

S&P Dow Jones Global Indices regularly releases overall performance data for active-managed funds in the United States and other markets. The latest update was released in October last year and covers funds in the first half of 2024 The performance highlights the challenges faced by stock selectors in an era of increasing stock market concentration.

Anu Ganti, head of investment strategy at S&P Dow Jones Index, said in a press release last October: "The first half of 2024 may be another one that actively managed funds encounter." A challenging time, especially for funds focused on U.S. or global stocks. ”

The rise in high-valuation stocks such as information technology have been stagnant, while valuations have been relatively high Cheap consumer staples, finance and health care stocks started strong this year, with most of the Big Seven stocks struggling to make substitutes.

Nevertheless, according to an analysis by ClearBridge Investments, the 10 largest stocks in the S&P 500 with the largest market capitalization (including the "Big Seven") still account for more than 37% of the index's total market capitalization.

The concentration of the S&P 500 is still very high compared to historical levels

But Jeff Schulze, director of economic and market strategy at ClearBridge, pointed out that high concentration It has declined from its peak in 2024 at least, which may indicate that stocks with smaller market caps in the index may continue to outperform.

Schultz said in the past, when the concentration of the S&P 500 exceeded the 24% threshold, in the following years, the equal weight S&P 500 often outperformed the weight by market value allocation. This has been the case in 96% of the S&P 500 since 1989.

This is a relatively small sample of research. Although the above pattern has not appeared for a long time this time, it seems that this pattern is continuing so far. As of Monday (February 24), trackingThe Invesco S&P 500 Equal Weight ETF (RSP) with equal weighted S&P 500 index rose nearly 3% this year, compared with the S&P 500 gained 2.3%.

In addition, other stock markets are also outperforming the U.S. stock market, with popular stock indexes tracking Europe and stock markets gaining double digits this year.

Because it is difficult for active management funds to outperform the market, more and more investors are investing more funds in cheap index ETFs. Vanguard S&P 500 ETF (VOO) recently replaced the SPDR S&P 500 ETF Trust (SPY) as the largest asset management product among listed ETFs in the United States, managing nearly $632 billion in assets.