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Research

The Revenge of the Stock Pickers

Hailey Lynch, Quantitative Investment Analyst
Rob Panariello, CFA, FRM, CAIA, Associate Director of Research, Multi-Asset
James Tzitzouris, PhD, Director of Research, Multi-Asset

When an exchange-traded fund (ETF) trades heavily around a theme, correlations among its constituents increase significantly. Even some securities that have little or negative exposure to the theme itself begin to trade in lockstep with other ETF constituents. In other words, because ETF investors are agnostic to security-level information, they often “throw the baby out with the bathwater.” As the prices of individual stocks get dragged up or down with ETFs, these mispricings can become significant, and the profits realized by taking advantage of them may present an opportunity for stock pickers.

Research

The Revenge of the Stock Pickers

The Revenge of the Stock Pickers

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The Revenge of the Stock Pickers, Financial Analysts Journal, copyright © CFA Institute, http://cfainstitute.org/, reprinted by permission of Taylor & Francis Ltd, http://www.tandfonline.com on behalf of CFA Institute. No reproduction or redistribution permitted without prior authorization.

© 2019 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.

201906-867035

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