New York — Turmoil in megacaps such as Apple is stirring investor anxiety, but for professional stock pickers, it’s mostly good news when the market’s biggest companies loosen their grip.

Since the start of 2021, 57% of large-cap mutual funds have beaten their benchmarks, marking the industry’s best start to a year in almost a decade, data compiled by Goldman Sachs Group shows. A key driver is the easing dominance of megacompanies that funds chronically own too little of.

Now, hope for an economic rebound is breathing life into everything from small caps to once-ignored stocks such as energy, expanding the pool of winners.

“As the market is seeing more leadership arrive from stocks that are lower in the market-cap spectrum, that ability to pick stocks is going to add value,” said Matt Miskin, co-chief investment strategist at John Hancock Investment Management. “It really comes back to active managers finally having their day in the sun.”

Heading into 2021, fund managers had increased their exposure to value to a record high while leaning towards cyclical shares, such as financials and energy. Those are this year’s best performers and value is off to the best start of a year in two decades relative to its growth counterpart.

So far, 2021 is shaping up as a more favourable year for active investing after the stay-at-home, safety trade ruled equities in 2020. Among the six largest stocks — Faang, that includes Facebook, Amazon, Apple, Microsoft, Alphabet and Google, and Tesla, a new addition to the S&P 500 — four are in the red in 2021.

All told, 54% of S&P 500 stocks have done better than the broad gauge. That contrasts with 2020, when only 37% of S&P 500 stocks beat the broad gauge, the lowest proportion since 1999, and the Faang block accounted for half of the index’s gain.

Among some 250 funds benchmarked to the S&P 500 that have at least $500m in assets, roughly 20% of them hold Faang stocks in greater proportion to their weighting in the index. On average, the Faang-loving funds are up 3.2% this year, trailing a gain of 5.7% for those that have no stake, data compiled by Bloomberg show.

In the eyes of Morgan Stanley analysts, stock picking will be a bigger driver now that the broad market is pricing in an economic recovery. The team developed a model to identify areas where coronavirus-related benefits and damage appear mispriced. To them, banks, energy and airlines are among industries with underappreciated opportunities while sectors tied to durable goods and consumption from home are priced for perfection.

Lawrence Creatura, a fund manager at PRSPCTV Capital, agrees that there are abundant mis-pricings in the market.

“It’s as if someone went into the grocery store and changed all the price stickers on the products,” he said. “There are now more products that have the wrong prices on them on the shelves and that’s a great thing for stock pickers.”



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