After a prolonged period where stocks “bounced around together”, they began to move more independently in the latter half of 2016 as financials, energy and material stocks surged higher, said David Stubbs, a global market strategist at the group.
In JPMorgan AM’s latest quarterly Guide to Markets he added: “These sector movements have helped explain the outperformance of value versus growth in the second half of 2016, with the fastest risers boosted by modest valuations in the middle of last year, and hence a heavy weighting in any collection of stocks judged purely for value.”
If this lower correlation within equities continued throughout this year it could signal the start of a new era where active managers can shine after a poor performance against their passive counterparts last year.
Stubbs said: “It is not clear at this point whether this pattern will persist in coming quarters.
“The big sector movements have been crucial in the correlation breakdown we have witnessed and, as the surge in those sectors abates, correlations may rise again.
“But if correlations remain low, we may have entered a new investing regime where investors are less concerned about macroeconomic instability and more interested in company-specific factors when making an investment.
“In this case, active managers could have a greater opportunity set than before, and value investing may well be more rewarded than in the recent past.”
