An increase in global macro investing and hedging behaviour is creating an environment of opportunity for individual stock-pickers, according to investment director, global equities at Standard Life Investments, Mikhail Sverev.
Sverev said growth in exchange-traded funds (ETFs) and global macro hedge funds, which had attracted $150 billion since 2007, represented a structural shift in the market – but investors' behaviour had changed as well.
As investors focused less on stock specifics, the macro-driven market was creating opportunities for astute stock-pickers, according to Sverev.
"The more marginal investors that ignore fundamentals of individual companies underneath those stocks, that creates opportunity for us because if my counter-party is increasingly less aware of stock specifics of those individual companies, I've probably got a greater informational advantage, assuming I have done my homework and know what this company is doing," he said.
Sverev said high levels of correlation since 2007 were proof that investors were increasingly ignoring individual stock specifics and trading stocks as risk-on/risk-off bets.
Correlation for US stocks ranged between 5 and 45 per cent between 1990 and 2007, but have since been consistently elevated and have spiked as high as 71 per cent in 2011, according to Sverev.
He said investor short-termism was a longer term trend.
But good stock-pickers could still find companies that were able to ride out the current market volatility, he said. Global companies with access to emerging markets through the US were good bets, according to Sverev.
"We think the opportunity for stock selection is undiminished because these companies are still doing great things, and if we get the stock specifics all right, we will be rewarded as shareholders, but the path to that reward might be more volatile," he said.
