Active fund managers are enjoying the good times as correlations between Wall Street’s S&P500 and its stocks are at one of the lowest levels since 2004.
The FT reports that a year ago there was a 60% correlation but that has slipped to just 18% according to estimates from Morgan Stanley.
A report from global wealth management firm AB Bernstein says that correlations among stocks have been “extremely elevated” since 2008 but moves by the Federal Reserve to normalize short-term interest rates has led to a noticeable decline which brings correlations more in line with the pre-2008 long-term average.
Bernstein’s analysis also shows a notable increase in active managers outperforming the benchmark (54%) in the first six months of 2017 compared with the five-year average (34%).
Conditions have favoured active fund managers due to rising stocks and low volatility following tough times in the past few years.
The low-correlation environment has meant an easing of outflows from mutual funds into ETFs, although it has not reversed the recent growth trend for passive investments.
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