Home   Logon   Mobile Site   Research and Commentary   About Us   Call 1.800.621.1675 or Email Us       Follow Us: 

Search by Ticker, Keyword or CUSIP       
Blog Home
Bob Carey
Chief Market Strategist
Click for Bio

Follow Bob on Twitter Follow Bob on LinkedIn View Videos on YouTube

  When Less Can Potentially Bring More
Posted Under: Conceptual Investing

View from the Observation Deck  
  1. If an investor seeks to outperform a benchmark index, such as the S&P 500 Index, one way to approach the challenge is to simply pare down the number of stocks one invests in.
  2. As indicated in the chart, over the past 10 years, the average number of stocks in the S&P 500 Index with positive annual price-only returns (does not include dividends) was 324, or roughly 65%. That means that approximately 35% of the constituents in the index, on average, were providing a drag on returns in a given year. 
  3. With respect to performance, the two best years in the chart for S&P 500 Index price-only returns were 2009 (425 positive stocks), the index was up 23.45%, and 2013 (457 positive stocks), the index was up 29.60%, according to S&P Dow Jones Indices. 
  4. If we throw out 2008 (think financial crisis), the two worst years for S&P 500 Index price-only returns were 2015 (215 positive stocks), the index was down 0.73%, and 2011 (232 positive stocks), the index was flat (0.00%), according to S&P Dow Jones Indices.
  5. Year-to-date through 5/31/18, there were 230 constituents in the S&P 500 Index in positive territory, with a price-only return of 1.18%, according to  S&P Dow Jones Indices. These figures are essentially in line with those from 2011 and 2015. 
  6. One of the ways in which an investor might attempt to generate a return in excess of a benchmark index is to identify and eliminate those companies most likely to end up in the red at year-end. Easier said than done.
  7. This is where professionals can add value for an investor. Financial consultants and packaged product vendors have a multitude of strategies designed to potentially outperform the broader market via less diversification. 
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks (currently 505) used to measure large-cap U.S. stock market performance. 

Download a PDF of this post, please click here.
Posted on Tuesday, June 5, 2018 @ 2:35 PM • Post Link Share: 
Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
Search Posts
Market Commentary and Analysis
Market Commentary Video
Weekly Market Commentary
Weekly Market Watch
Monthly Talking Points
Quarterly Newsletter
Market Observations
Subscribe To Receive Email

US Stock Markets Ended June 1, 2018
US Economy and Credit Markets Ended June 1, 2018
A Snapshot of Bond Valuations
So Much For The Great Rotation Out Of Bond Mutual Funds
US Stock Markets Ended May 26, 2018
US Economy and Credit Markets Ended May 26, 2018
Small-Capitalization (Cap) Stocks Leading The Way In 2018
A Snapshot Of Dividend-Payers & Non-Payers In The S&P 500 Index
US Stock Markets Ended May 18, 2018
US Economy and Credit Markets Ended May 18, 2018
Skip Navigation Links.
Search by Topic
Skip Navigation Links.

The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2020 All rights reserved.