The challenge of beating the market … how did Louis and Matt do in their promise to triple the market? … what these expert investors are seeing in 2021
Here’s a dirty secret of investing …
Most highly paid, professional investment managers aren’t that great.
We can see this by looking at the returns of active fund managers compared to benchmark indexes.
For example, let’s say Fund Manager A produces a return of 18% for his clients one year and claims this illustrates what a great money manager he is …
Well, if it turns out that his nearest benchmark index — say, the Dow Jones — was actually up 25% that year, then this 18% return would actually be revealed as underperformance.
(Even more so when you factor in that most index funds have low expense ratios — usually around 0.20% — while the average investment manager’s fee is 0.95%).
So, just how bad is this “pro” underperformance?
Each year, S&P Dow Jones Indices publishes a semiannual “SPIVA” Scorecard (S&P Indices Versus Active). The study compares active fund managers against their respective benchmarks.
Earlier this year, the report came out, tracking performance halfway through 2020.
Here’s Index Fund Advisors for the takeaway:
The overarching takeaway here remains the same. In good times as well as bad, active management has persisted to produce underwhelming results.
Through June, more than 87% (87.2%) of all domestic stock fund managers had underperformed the broad S&P Composite 1500 Index since June 2005.
Below you’ll see this broken down by sector.
The charts show the percentage of active U.S. equity funds that underperformed their respective benchmarks for the 15-year period ending June 30, 2020.
You’ll see this underperformance in orange.
That’s a lot of underperformance — and it supports a time-worn takeaway …
It’s hard for most investors, even the pros, to beat the market.
***Given this, an investment manager who offered a guarantee to triple the returns of the market would seem downright idiotic
Yet, as 2019 rolled into 2020, that’s exactly what Louis Navellier and Matt McCall did when they launched the Power Portfolio 2020.
The guarantee was that, if by the end of 2020, the Power Portfolio didn’t show at least triple the returns of the Dow Industrials, subscribers would get another year of the research service — free.
For newer Digest readers, we’ll provide more details on the Power Portfolio in a moment, but since we’re already on the topic of performance, let’s see how Louis’ and Matt’s guarantee turned out.
At the end of last month, they officially closed out the portfolio. Here was their logic on the timing, as explained to their Power Portfolio subscribers:
… if we were managing this portfolio for our families, our friends, or anyone … with growing our wealth in 2020 in mind … we’d go ahead and close out the Power Portfolio now, book our massive gains, and start thinking about how to produce a similar world-class performance in 2021.
Speaking of those “massive” gains, here are the details …
Since the Power Portfolio 2020’s inception on 12/10/19 through its 11/23/20 close, it returned 34.9% compared the Dow’s 5.8%
As for their Dow-3X guarantee, the Portfolio produced 6X returns since inception.
If you weren’t a part of these returns, the good news is that Louis and Matt have agreed to do it all over again in 2021. More on that in a moment, but first, for newer Digest readers, let’s review what the Power Portfolio is all about.
***Two investment styles, combined for a “best of breed” portfolio
You might recall that as 2020 approached, many investment analysts were turning bearish.
The market had recently set a new record for the longest bull run in history, which had many worried that what goes up, must eventually come down (especially after a decade of “up”).
Then there was the inverted yield curve … some disappointing economic data … the trade war with China …
But in conversations around the InvestorPlace office, it became clear that two analysts were decidedly bullish on 2020 in spite of all this — Louis and Matt.
Further, they shared many of the same perspectives on the upcoming year — despite having vastly different market orientations.
You see, Louis is a classic “bottom up” investor.
He has objective criteria programmed into highly advanced computer models that signal what to buy, when to buy it, and when to sell to collect the profits.
After finding investment candidates, he evaluates their broader sector to make sure he still likes the overall opportunity.
Matt is a classic “top down” investor. He starts by analyzing entire sectors and trends poised for huge growth like autonomous vehicles, 5G, or Artificial Intelligence.
After identifying an attractive one, he then digs deeper to find the specific stocks best positioned to capitalize on that broad sector trend.
When our CEO, Brian Hunt, caught wind Louis’ and Matt’s shared views on 2020, he had an idea — combine their different investment styles to create a best-of-breed portfolio.
It would be a collection of hand-selected stocks that passed both Louis’ and Matt’s strict investment criteria, all presented at once (rather than dripped out “one per month”).
It would also be a set-it-and-forget-it portfolio, engineered for one reason — to crush the market in 2020 once it officially launched.
And with that, the Power Portfolio was born.
Looking back, this focus on quality made a world of difference in this chaotic year.
As Louis likes to say, “the best defense is a good offense of superior stocks.” That certainly proved true in the wake of the fastest bear market in history.
Louis’ and Matt’s 12 stocks rallied 175% — on average — from their individual lows back in March. Two even soared more than 400%.
And as we just noted, these two experts made good on their 3X guarantee, and then some — their performance is one that any investment manager would love to boast given how most can’t even match a market return.
So, a big congratulations to the Power Portfolio 2020 subscribers on not only making it through a year for the ages, but for doing so while generating fantastic returns on both a relative and absolute level.
***But now, all eyes are on 2021 — how should investors position themselves?
The market is in a very different position than it was one year ago, with a long list of questions facing investors …
What does a Biden presidency mean for the markets?
What happens if the global lockdown from COVID-19 goes on longer than expected?
What sectors or industries have the most immediate upside, regardless of what happens?
And given these answers, what best-of-breed stocks might find their way into the Power Portfolio 2021?
After all, there’s no guarantee that what worked this year will be work equally-well next year.
To address these questions and more, Louis and Matt are getting together next Thursday, December 17, at 7 PM ET for an Early Warning Summit.
This week in the Digest, we’ve been featuring forecasts from our experts about 2021. Well, the event next Thursday is going to dive into loads more detail on next year than we could ever present to you here in the Digest.
So, if you’re looking for an in-depth analysis of what’s coming over the next 12 months, and how to position yourself accordingly, this is your event. To reserve your seat, just click here.
A final congrats to the Power Portfolio 2020 subscribers. Cheers to an even better 2021.
Have a good evening,