Markets

The Myth of the Successful Money Manager

Published

8 years ago

December 2, 2014

Jeff Desjardins

The Myth of the Successful Money Manager

It seems logical to conclude that having an experienced fund manager handle your money would be the best choice for a good return on investment.

However, much data shows that especially after fees and other deductions, that these types of funds often fail to beat the market. This is one of the myths that Tony Robbins, the famed life coach, has identified in his latest book called “Money Master the Game” and has helped shed light on.

From 1984 to 1998, a 15 year period, only eight out of 200 fund managers beat the Vanguard 500 Index. While you will hear stories of managed funds crushing the market in the course of one year or maybe two, over time it becomes much more unlikely. Over 40 years, only 12% of managed funds tend to beat the benchmark indices.

Original graphic from: Business Profiles

Related Topics:stocks fund manager money manager managed funds market index hedge funds investing

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Technology

Just 20 Stocks Have Driven S&P 500 Returns So Far in 2023

From Apple to NVIDIA, megacap stocks are fueling S&P 500 returns. The majority of these firms are also investing heavily in AI.

Creator Program

Published

4 days ago

May 24, 2023

Dorothy Neufeld

Just 20 Stocks Have Driven Most of S&P 500 Returns

Just 20 firms—mainly AI-related stocks—are propping up the S&P 500 and driving it into positive territory, signaling growing risk in the market.

The above graphic from Truman Du shows which stocks are making up the vast majority of S&P 500 returns amid AI market euphoria and broader market headwinds.

Big Tech Stock Rally

Tech and AI stocks have soared as ChatGPT became a household name in 2023.

The below table shows data from last month, highlighting that just a small collection of companies drove most of the action on the U.S. benchmark index.

Company Rank	Name	Contribution to S&P 500 Return	Average Weight
1	Apple	1.49%	6.61%
2	Microsoft	1.15%	5.72%
3	NVIDIA	1.00%	1.62%
4	Meta	0.66%	1.15%
5	Amazon	0.51%	2.56%
6	Tesla	0.50%	1.39%
7	Alphabet (Class A Shares)	0.34%	1.72%
8	Alphabet (Class C Shares)	0.31%	1.53%
9	Salesforce	0.19%	0.51%
10	Advanced Micro Devices	0.16%	0.39%
11	General Electric	0.10%	0.28%
12	Visa	0.10%	1.08%
13	Broadcom	0.09%	0.73%
14	Intel	0.09%	0.35%
15	Walt Disney	0.08%	0.55%
16	Booking Holdings	0.07%	0.28%
17	Exxon Mobil	0.06%	1.37%
18	Netflix	0.06%	0.44%
19	Oracle	0.06%	0.40%
20	Adobe	0.06%	0.49%
	Top 20 Companies	7.05%	29.17%
	S&P 500*	7.55%	100.00%

*Based on the Vanguard S&P 500 ETF as of April 11, 2023. Source: Vanguard S&P500 ETF, Bloomberg.

Microsoft invested $10 billion into OpenAI, the creators of ChatGPT. It has also integrated generative AI into its search engine Bing. This large language model is designed specifically to make search capabilities faster, generate text, and perform other automations.

Also of interest is NVIDIA, which is the most valuable chipmaker in America. It sells $10,000 chips called A100s that allow machine learning models to run. These models perform multiple tasks simultaneously to develop neural networks and train AI systems, including OpenAI’s ChatGPT. Companies that are developing AI-related services, such as chatbots or image generation, may use up to thousands of these chips.

Despite being the world’s most valuable company and a key driver of returns, Apple is an outlier among tech giants with no major projects announced in AI (so far).

Implications of Market Divergence

The problem with the strong gains seen in a few select AI-related stocks is that it clouds wider stock market performance.

Without the AI-led rally, the S&P 500 would be returning -1.4%. as of May 17, 2023.

4. AI is fueling the stock market

A handful of stocks are spearheading the S&P 500's impressive 9% rally this year.

Here’s the kicker: if you excluded AI stocks, the S&P 500 would be down over 1% (according to Societe Generale). pic.twitter.com/SME1mJVpoW

— Rowan Cheung (@rowancheung) May 22, 2023

This form of steep divergence, known as market breadth, often signals higher risk in the market.

When more companies experience positive returns it is less risky than a small handful seeing the majority of the gains. Today market breadth is very narrow, and these companies make up over 29% of the entire index’s market capitalization.

How long AI-related firms mask the broader performance of the S&P 500 remains to be seen. A growing number of market pressures, from higher interest rates to banking uncertainty could add further challenges.