Some of their picks were less than stellar this year
In a year when the S&P 500 stock-market index earned a stellar 26%, it’s probably not surprising that it left the world’s top money managers in the dust.
But it’s notable that the eight assets they favored most for 2024 ended up doing worse than the eight assets they favored least.
Once again, you were better off buying the assets on Wall Street that were the most hated by the big-money crowd than the assets that were most loved.
This has been true in three of the four years we’ve been tracking this closely, and it is the rationale behind our occasional tongue-in-cheek feature “Pariah Capital,” which likes to own what the “smart money” hates.
The most and least popular asset classes among big investors emerge from the highly regarded monthly Bank of America Securities Global Fund Manager Survey, which typically talks to about 200 asset allocators and chief investment officers handling, in total, more than half a trillion dollars in client funds.
At the start of this year, they told the survey they were significantly “overweight” — overinvested — in healthcare stocks, Japanese stocks and emerging-market stocks. All three produced single-digit returns: The Vanguard FTSE Emerging Markets exchange-traded fund
VWO+0.40% earned 9% so far this year, the Franklin FTSE Japan ETF FLJP-0.04% 4.9% and the Health Care Select Sector SPDR ETF XLV+0.41% a mere 2.9%. Money managers also held unusually large amounts of “cash” — Treasury bills and the like — in their portfolios. The Goldman Sachs Access Treasury 0-1 Year ETF GBIL+0.01% earned 4.7% during the year. It’s not strictly fair to compare the performance of Treasury bills to the stock market, because T-bills involve effectively no risk. But it wasn’t a great year to be overweight in cash.
The big investment institutions were, at least, helped during the year by their decision to own more U.S. stocks, and particularly technology stocks, than usual. The Vanguard Total U.S. Stock Market ETF
VTI+1.06% earned 26% and the Vanguard Information Technology ETF VGT+1.10% an astonishing 33%.
Overall, an equally weighted portfolio of the eight asset classes that were most popular with big institutional investors at the start of the year has earned clients 13.7%.
Before fees, of course.
Meanwhile, an equally weighted portfolio of the eight asset classes that they were avoiding has earned you 16%, or more than 2 clear percentage points more.
Oops.
A year ago, the big-money crowds were shunning banking stocks.
The return on the Invesco KBW Bank ETF KBWB+1.27% during the year? A spectacular 36%.
They were also shunning so-called consumer discretionary stocks, meaning the type of consumer companies that sell “wants,” such as vacations, instead of “needs,” such as toilet paper. The Consumer Discretionary Select Sector SPDR ETF XLY +2.31%
rocketed 29% this year.
They were also underinvested in insurance stocks and utilities. The SPDR S&P Insurance ETF KIE+0.90% earned you 26% this year and the Vanguard Utilities ETF VPU+0.49% 23%.
The performance of the utilities sector is better than it looks, because that’s usually a low-risk, low-volatility industry. Utilities have turned out to be big winners in the artificial-intelligence boom (or mania), because AI chips use a huge amount of electricity.
On the other hand, fund managers a year ago turned out to be right to shun energy stocks, real estate investment trusts and European and London-based stocks. The Energy Select Sector SPDR ETF XLE +0.85% earned investors a paltry 2.5% this year, the Vanguard Real Estate ETF VNQ +0.66% 4.5%, and the SPDR EURO STOXX 50 ETF FEZ +0.35% 3.8%. The Franklin FTSE United Kingdom ETF FLGB +0.71% earned 7%, but the average of that and the smaller-cap iShares MSCI United Kingdom Small-Cap ETF EWUS+1.21% ended up earning just 4.2%.
This lags far behind not only the overall stock market (see above) but also a typical balanced portfolio that anyone could own. The Vanguard Balanced Index Fund, which owns 60% U.S. stocks and 40% U.S. bonds, has earned you 20% this year.
Probably a fairer benchmark, which consists of 60% global stocks and 40% global bonds, earned 16%. (Anyone can buy this portfolio through low-cost ETFs, such as the Vanguard Total World Stock ETF VT+0.79% and the Vanguard Total World Bond ETF BNDW+0.15%).
We’ll report on what’s ahead for 2025 when the next survey comes out in the new year. But as we noted recently, the last survey of 2024 showed big investors in the grip of “Trumphoria,” with the heaviest overinvestment in U.S. stocks since at least the infamous Wall Street bubble of the late 1990s.
Let’s hope that fares better in 2025 than this year’s top picks did.