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January 2, 2014

Stifel Likes Stockpicking

By

Peter Chapman

Ron Kruszewski, president and chief executive officer of Stifel Financial, believes his firm's trading desk will benefit from an increase in active investing in the coming years.

"We have a big investment in research," Kruszewski said at KBW Securities' Brokerage & Market Structure Conference in New York in November, "and I believe it will pay dividends in the future. Compared to the last four years, I believe that active management will outperform passive management."

With the stock market crash of 2008, many investors spurned equities for bonds and other investments. Monies earmarked for stocks often went into passive mutual and exchange-traded funds. Active managers lost out. Passive equity mutual funds grew from 11 percent of total equity funds in 2007 to 17 percent in 2012, according to Investment Company Institute data.

Active management suffered during the crisis years because there was nothing to gain by picking stocks, Kruszewski said. Due to investor fears, prices of stocks moved in lockstep, or were "correlated," according to the jargon.

"During the last four years, it seemed like everything was correlated," Kruszewski said. "That led to more passive management. But, as I look forward, I see active management providing more alpha than the passive. That will help drive returns for our equity platform."

Correlation has declined in the past two years. According to data from Morgan Stanley, the one-year realized correlation for the top 50 stocks in the S&P 500 Index stood at 40 percent earlier this year. That's down from a high of nearly 80 percent in early 2012 and comparable to levels in 2007.

With its acquisition of Keefe, Bruyette & Woods last year, Stifel's equity research operation now covers 1,341 stocks, according to data from Stifel. That is more than any other U.S. brokerage.

 

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