The importance of stock selection

It is important to look behind index and sector returns, as there can be wide variation in the performance of individual companies within a sector, with some stock's performing well above - or below - the sector median.

This has been evidenced by the returns seen in the Australian sharemarket over the past nine months (to 30 September 2009). As the chart below shows, the variance in sector returns has been close to 500% in some sectors from the top performing to bottom performing stocks (such as telecoms and materials).

Active management based on strong research is more likely to uncover better opportunities in more volatile market environments. 

All Ordinaries Index sector returns between 1 January to 30 September 2009. Percent shown at the bottom of each column is the return for the median of that sector over the nine months. The top of the column is the 95th percentile stock return and the bottom the 5th percentile return (removes wayward outliers). Source: Morningstar as at 30 September 2009.

The above article has been sourced from FIL Investment Management (Australia) Limited.

Important Information

The above information provides an overview or summary only and it shouldn’t be considered a comprehensive statement on any matter or relied upon as such. The above information doesn’t take into account your personal objectives, financial situation or needs. It’s important for you to consider these matters before making any financial decision and I recommend you seek help from a financial adviser.