A style manager’s guide to stock, picking in a low dispersion market
Identifying active vs. passive stocks for growth and value managers
Growth and value managers misallocate active share
We find that the average style manager allocates the lowest amount of
active share to alpha-generating stocks and the highest active share to
stocks that track the market. We recommend investors reallocate active
share to stocks with high “dispersion scores,” our measure of firms’
likelihood of moving independently from sector- and market-level returns.
We identify growth and value stocks that will drive alpha …
Our framework identifies 50 stocks from each of the Russell 1000 Growth
and Russell 1000 Value indices with much greater propensities to react to
company-specific news flow than the average stock, providing a platform
to differentiate skilled stock-pickers from their less-skilled counterparts.
… And those stocks that fund managers should index
In addition, we identify the stocks on which fund managers typically take
significant active share but would be better served by indexing.