Fresh Thinking on Active Investing in U.S. Large-Cap Stocks

When it comes to assembling a well-rounded investment portfolio, the makeup and placement of U.S. equity allocations are key considerations. Tony DeSpirito, Global CIO of BlackRock Fundamental Equities, challenges conventional thinking to suggest that alpha-seeking strategies in U.S. large-cap stocks are deserving of a core position in portfolios.

Investors have more choices than ever for building their investment portfolio, both in asset types and the vehicles for holding them. While U.S. large-cap stocks often hold a place at the core of portfolios, many believe this exposure is best achieved via passive index-tracking products. The rationale: The U.S. equity market is so efficient and transparent that there is little alpha (or above-market return) to be captured via active stock selection.

We disagree.

Ample alpha potential

Many prefer to apply active strategies in more niche and less transparent markets, such as emerging markets or U.S. small caps. We see wisdom in this but believe the alpha opportunity is much broader.

The top stock by market cap in the S&P 500 is larger than the entire small-cap universe, suggesting to us that avoiding active in U.S. large caps means sacrificing tremendous alpha potential.