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FTSE 350: In hope of a better year for stockpickers

Last year was a rotten one for stockpickers as - unusually - smaller companies failed to outperform
January 29, 2015

A year ago, stockpickers had every reason to celebrate. Index investing may be all the rage, but 2013, even more than 2012, was a year that rewarded stock selection, particularly in the lower echelons of the stock market.

Not so 2014. A flight to quality hammered those taking bets on smaller companies - particularly those traded on Aim. We cannot know how the portfolios of UK private investors fared last year, but we have something of a proxy: the performance of open-ended funds. According to Morningstar, the average fund returned 0.1 per cent over the year to 9 January. If you'd put your money into the Vanguard All-Share tracker, you'd instead be up 0.9 per cent.

Perhaps the most powerful reason why investors became more cautious was simply mean reversion: they could scarcely have become more upbeat. In our introduction to the FTSE 350 review last year I wrote: "Perhaps the most worrisome aspect of the current market situation is the bullish consensus. Investors' pessimism a year ago was one of the principal drivers of return in 2013. If that logic is extended, 2014 is likely to disappoint." That logic proved on the money. Extending it once again, 2015 should prove more rewarding.

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