Free From FANG Dominance, Stock Pickers Are Doing Best Overseas

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.