Money Manager Flam: Dominance of Politics Makes Stock Picking Difficult

Wednesday, 21 Nov 2012 08:12 AM

By Dan Weil

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Only about 20 percent of active money managers are beating their benchmark, and the heavy influence of politics on the stock market is a major reason why, says Gary Flam, portfolio manager at Bel Air Investment Advisors.

"Most professional advisors have a background in evaluating companies, industries, economies,” he tells CNBC. “It's not in politics, and politics is what’s dominating the markets over the last couple of years."

Investors are turning more and more to passively managed mutual funds and exchange-traded funds (ETFs). On the mutual fund side, those offerings account for 16.4 percent of all assets, jumping 44 percent over the past five years, according to Strategas Research Partners data cited by CNBC.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

Almost all ETFs are passively managed. Their assets have soared 18 percent this year.

Even successful active managers can burden investors with substantial risk. That’s because their investments tend to be concentrated, leaving them vulnerable, Nadav Baum of BPU Investment Management tells CNBC.

As for the influence of politics in the stock market, it has been particularly strong in the past couple weeks. From Nov. 7 to Nov. 15, the Standard & Poor’s 500 lost 5.3 percent amid fear of the fiscal cliff.

From Nov. 16 to Nov. 20, the index rebounded 2.1 percent amid optimism the cliff can be averted.

“The U.S. economy looks pretty good. Earnings are OK,” Michael Shaoul, chairman of Marketfield Asset Management, tells Bloomberg. “As long as Congress doesn’t absolutely wreck it, it will be fine.”

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

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