The importance of stock selection

by Andrew Newman
in Investing
13 Nov 2009 | 0 Comments

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.

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Information provided in this newsletter is general in nature and does not constitute financial advice. While we have taken reasonable care in providing this information, it should not be construed as being specific to your investment objectives, financial situation or particular needs. It's important for you to consider these matters before making any financial decision and we recommend you seek financial advice.

The importance of stock selection

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