BofA: Retail investors are better at picking stocks than hedge funds
The "dumb money" might be smarter than some pros think, which is one of many conclusions by Bank of America Global Research strategists in a new annual primer of quantitative research.
"Smart" vs. "dumb" money
The first theme explored in the BofA report is whether retail interest in a stock serves as a reliable "contrary indicator." The strategists found that this isn't exactly true.
"Smart" vs. "dumb" money
The first theme explored in the BofA report is whether retail interest in a stock serves as a reliable "contrary indicator." The strategists found that this isn't exactly true.
The team's data-driven analysis found that stocks with strong retail inflows tended to outperform their benchmarks over the following four weeks by 1.1%, compared with 1% of outperformance for stocks with inflows from hedge funds.
And stocks with high retail ownership have tended to outperform stocks with low retail ownership when markets are falling.
![BofA: Retail investors are better at picking stocks than hedge funds](https://ussnsimg.moomoo.com/8897331678206641059.jpg/bigmoo)
Value vs. growth
Another theme is the historical performance of value and growth stocks compared with their benchmarks ( $S&P 500 Index (.SPX.US)$).
The BofA team found that over the long-term (since 1978), the Russell 1000 Value index has outperformed the Russell 1000 Growth index. However, growth outperformed value from 2007 to mid-2020, as the financial crisis and its aftermath led to a period where growth became the scarce resource. On an annual basis, growth has beaten value in six of the last seven years.
![BofA: Retail investors are better at picking stocks than hedge funds](https://ussnsimg.moomoo.com/7629078721411816060.png/bigmoo)
Value stocks also tended to put in their best performance during the first 12 months of a tightening cycle, outperforming the equal-weighted S&P 500 index by 7%.
![BofA: Retail investors are better at picking stocks than hedge funds](https://ussnsimg.moomoo.com/1736647014657284552.png/bigmoo)
Will corporate buybacks rescue stocks?
In recent weeks, JP Morgan said that hundreds of billions of dollars of corporate buybacks should help put a floor under stocks during the second half of the year.
But Bank of America advised their clients that corporate buybacks haven't had much of an impact on equity performance historically.
![BofA: Retail investors are better at picking stocks than hedge funds](https://ussnsimg.moomoo.com/8115410155852230884.png/bigmoo)
"Some expect this earnings season's market volatility to be quelled by the resumption of buybacks after the company's blackout periods end. But the relationship between S&P 500 buybacks and index performance since 1986 is a minimal 0.07 R-squared," The BofA wrote.
Source: MarketWatch, BofA Global Research
Disclaimer: Investing involves risk and the potential to lose principal. Past performance does not guarantee future results. This is for information and illustrative purposes only. It should not be relied on as advice or recommendation.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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justTOASTplease : good read
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Maz The AMC Rilla : very good info, thank you!