Free From FANG Dominance, Stock Pickers Are Doing Best Overseas

(Bloomberg) -- The megacap technology companies powering the U.S. stock rally are bedeviling active fund managers.

Just 48% of actively managed U.S. equity funds outperformed their benchmark in the first six months of 2020, according to a Morningstar Inc. report Thursday. Meanwhile, almost 60% of active foreign-stock funds did better than their index-tracking counterparts in that span.

The diverging fortunes are largely due to the narrow breadth of the U.S. equity rebound. While the S&P 500 Index has surged 55% since late March, gains have primarily been driven by the popular group of tech stocks known as the FANGs, which benefited from the “stay-at-home” trade popular amid the coronavirus. U.S. stock pickers had to embrace those companies or lag behind their benchmarks, while foreign-stock gains have been broader, making managers of those funds less dependent on picking just a few outperformers, Morningstar’s Ben Johnson said.

“Especially over past six months within the U.S., the bar has been pretty high for U.S. large-cap funds in particular given the degree of concentration we’ve seen,” Johnson, global director of ETF research, said in an interview.

Facebook, Amazon.com, Netflix and Google shares make up almost 12% of the S&P 500 Index. When combined with Apple and Microsoft, the group accounts for about a quarter of the gauge. An index of the tech titans has climbed 79% from March’s lows.

That level of concentration doesn’t exist in overseas equity markets, according to Johnson.

“That’s something you don’t see for the most part outside the U.S.,” Johnson said.

©2020 Bloomberg L.P.