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Defensives and momentum still win

High beta and recovery stocks have done well recently. But these are not good long-term investments.
Defensives and momentum still win

Equities enjoyed a good second quarter, with the FTSE 350 rising 20 per cent. You’d expect, therefore, that high beta stocks (those most sensitive to moves in the aggregate market) would have done well. And they have. My portfolio of them rose 41.2 per cent in the quarter, thanks in part to huge gains on Boohoo and Hochschild.

In the longer-term, however, investors pay a high price for such short-term out-performance. In the last ten years, my high-beta portfolio has underperformed the FTSE 350 by over 50 percentage points.

This isn’t a quirk of my portfolio. It’s part of a general trend. Economists at AQR Capital Management have shown that many other high-beta portfolios – and not just of equities – also underperform over the long-run. There’s a reason for this, they say, which probably applies to the UK too.

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