A Great Opportunity for Active Managers to Outperform their Benchmarks and Passive Products
Active managers have a great opportunity to deliver alpha profiting from the fact that equity markets display a huge dispersion of performance all the time. In 2020, if you look at the S&P 500 constituents, the differential between the top 25% performers and the bottom 25% performers was massive. The average return of the top 100 stocks was 105% while the bottom 100 was -18%. This is enough to provide an opportunity for prepared, active stock pickers to beat the 16% return of the index. It is clear that if an active manager can capture a part of the top performers and avoid most of the bottom performers, they will have a high probability to beat the benchmark.
-Rocco Pellegrinelli, CEO of Trendrating
To arrive at our monthly Sector Allocations, we delineate the S&P 500 universe of stocks into five groups based on their Smart Momentum Score (SMS). Any stock that has retraced at least 20% from a trend high is considered an outlier. The sector allocation is then found by looking at the proportion of names within quantile one for each sector. To control risk, no sector can represent more than double its weighting in the index.
Over the last few months, the market has been driven by a handful of securities. The Trendrating model is heavily overweight Consumer Discretionary, Industrials, and Financials and slightly overweight Materials and Energy. Conversely, Trendrating identifies the sectors with the weakest trends as Information Technology, Communication Services, Health Care, and Consumer Staples. We are neutral on Utilities and Real Estate which have a deviation of less than +/- 2% from the index weighting.
US Macro Market View – May to June
Top Trending Stocks in the S&P 500
Each month we distribute the Trendrating 100 list to our clients. We delineate the S&P 500 universe of stocks into five groups based on their Smart Momentum Score (SMS) and retracement value. Any stock that has retraced over 10% from a trend high is considered an outlier. This leaves us with a list of names in which our Model has high conviction. The market environment will dictate the number of names in the Top 100 list, but it will typically range from 80-100 companies. Here will be highlighting the Top 25 companies each month. Contact Trendrating for the complete list.
Rating Grade: A = Strong Bull Trend / B = Emerging Bull Trend / C = Emerging Bear Trend / D = Strong Bear Trend
Smart Momentum Score (SMS): is a continuous rating scale between -3 and 3, measuring the strength of the trend since that trend began. The metric allows the model to differentiate between securities of the same ratings, whether that is an A, B, C or D rated security.
Retracement: The percentage off the peak of the trend for positive trends or off the bottom for negative trends.
Proven Effectiveness – A 20-year back test supporting Trendrating’s sector allocation approach
Trendrating Brochure – An overview of the services we offer
Trendrating Indices – Six Indices calculated daily and rebalanced monthly
Contact us to request more information about Trendrating’s web-based platform
ANY AND ALL INFORMATION PROVIDED BY TRENDRATING OR DERIVED FROM TRENDRATING’S DATA IS PROVIDED “AS IS” AND TRENDRATING MAKES NO WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Trendrating has no affiliation with any company mentioned in this report.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.