Chart of the week

Wide performance dispersion may favor active managers

Dispersion between best- and worst-performing S&P sectors is at a 20-year high. This week’s chart tracks it over time and outlines why it matters.

May 27, 2022 | 2 minute read

Total return dispersion between best- and worst-performing S&P sectors

Source: Bloomberg Finance, L.P., FS Investments, as of May 25, 2022. Based on quarterly returns since Q1 2002.

  • For much of the period between the 2008–2009 global financial crisis (GFC) and the pandemic-induced recession in 2020, equity markets moved steadily higher, and volatility remained relatively mild. Amid this period of peacetime investing, many S&P sectors remained generally in sync with few notable outliers.
  • During times of macro stress, however, market activity differed considerably. The performance dispersion between the best- and worst-performing S&P sectors jumped to about 40% during the GFC and again during the pandemic-induced recession in 2020.1 As volatility has spiked again this year, so has performance dispersion.1
  • Each historical instance in which sector variance spiked has been very different. In 2008–2009, real estate was the greatest outlier whereas energy was the worst performing sector (among many) in Q1 2020. Year to date, all but two sectors have turned in negative returns, and energy stocks have returned approximately 45%.1
  • While we don’t know what’s next, we can learn from other periods of wide return variance. For example, the worst-performing sectors in the past two spikes (real estate and energy) saw strong snapbacks and intra-sector performance quickly narrowed, creating new winners.
  • While today’s environment calls for caution, corporate fundamentals remain strong. The broad market dispersion may create opportunities for active investors with the experience, process and flexibility to separate the winners from the losers.

  • Bloomberg Finance, L.P., FS Investments, as of May 25, 2022. Based on quarterly returns since Q1 2002

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

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