When the Big Get Bigger, Active Stockpickers Feel Even More Pain
Quants, who use computers to find an edge, have struggled to beat the simple strategy of buying and holding the largest companies.
In a crisis, large companies can have an edge. As the pandemic has forced the shuttering of local stores and restaurants, grounded consumers streamed Tiger King on Netflix, stocked up on groceries and supplies with Amazon, and gathered together on Zoom. Hardly any company is immune from the economic shutdown, but big business has more resources to weather the pandemic and, in some cases, may be able to gain market share.
On Wall Street, that’s exacerbating a divergence between small and large companies that’s been frustrating stockpickers for some time. The Russell 2000, a benchmark for small companies, has lagged the big-name S&P 500 index badly over the past two years. This year, the small stocks, with a median market valuation of about $525 million, have lost 23%; the S&P less than half of that. The Nasdaq 100, which tracks the largest tech stocks, is up about 1%. The S&P 500’s companies now make up 82% of the entire U.S. stock market’s value, a percentage that’s been steadily rising this century.