“Between asset classes you have a lot of correlation but there is now massive dispersion between companies. It is the perfect environment for a stockpicker. You have a low hurdle to beat but lots of dispersion between stocks within the most liquid part of the market, where historically that has not been the case.”
Surface tension
Wharrier believes the reason for this is that the potential for shares to become mispriced is greater now than at any point in his career, largely as a result of a shift in the nature of the marginal investor.
“Twenty years ago, the marginal investor was made up of a collection of pension funds and family unit trusts; now it is a hedge fund and an ETF.”
He says: “When there is a disappointment now, you find that a lot of these investors want to short or sell the shares and there just aren’t the long-term investors on the other side that are prepared to take advantage of the volatility.”
The corollary to that is, of course, that doing the work and staying close to companies and understanding why something has gone wrong is liable to be rewarded.
Wharrier says there are already a number of big managers who like the buy-and-hold strategy, and who try and look through such volatility in a low-growth world, taking advantageof this volatility. However, he adds that buying when prices are depressed and selling when they go higher is going to play a bigger role in future total returns, because this is not going to come from the underlying equities.
He says: “I think the activity part of active management is going to become more and more important.”
