Retail Investors Outperform Most Fund Managers

RETAIL INVESTORS OUTPERFORM MOST FUND MANAGERS

The favourite stocks of retail investors since the March low have outperformed most institutional investors. These retail favourites tend to be the relatively small number of market leaders such as the FAANGs, Microsoft, Tesla who also benefit from the strong capital flows coming from passive investors because of their large market weights. This combination of passive and retail capital flows has produced significant price momentum.

Actively managed, diversified funds are at a performance disadvantage in the current era of very narrow market leadership. While the current narrow leadership may persist, market history suggests such trends are not sustainable. The eventual correction of the current “Nifty Fifty” will contribute to the unusual volatility we expect for the 2020s.

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