Stock-picking alpha in a life or death struggle?
| Oct 31st, 2010 | Filed under: CAPM / Alpha Theory, Today's Post | By: AAA Staff |
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Stock-picking skill is increasingly tested by a low dispersion of stock returns. Everything, junk and quality, seems to rise or fall in almost exactly the same measure, despite divergent fundamentals. Blame it on macro-oriented investors, and particularly ETFs, the most convenient way to express a macro view.
ETFs may be emblematic of efficient market investing – a cheap beta play to tap the equity risk premium. But they appear to be wreaking havoc on the efficiency of markets – by keeping clapped-out clunkers from moving over for high-performance vehicles.
Since the Great Bust of 2008, stock markets – at least in the U.S. – have been notable for a dwindling of dispersion. Some are calling this the death of alpha (or at least, of stock-picking).
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