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Expect a return to more ‘normal’ investing where stock picking is rewarded, Goldman Sachs says


Traders are seen working on the New York Stock Exchange’s floor in New York City (USA), February 15, 2022.

Brendan McDermid | Reuters

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Goldman Sachs believes that the alpha generation could return to the asset-management industry, as it will see less concentration in an environment marked by increased inflation and higher interest rates.

In a note, Peter Oppenheimer (chief global equity strategist, Goldman) stated that “We have returned to a more normal cycle in which we expect investors will be rewarded for making stock and sector decisions relative to potential growth relative what is priced.” This should be a return of Alpha.

Stock pickers have not found the current bull market to be ideal as stocks rebounded in unison from the Covid-induced slump. The Wall Street firm stated that this market rebound has driven valuations up to new heights in growth-oriented tech sectors, which may lead to lower returns overall and less technology dominance during the period of hawkish monetary era.

Goldman stated that tech stocks and megacaps have experienced earnings growth much faster than other corporate sectors over the last few years. FAAMG — Facebook (now Meta Platforms), Amazon, Apple, MicrosoftGoogle’s Alphabet — is now 50% bigger than the entire global energy industry and almost five times the size of the global auto industry excluding Tesla, according to Goldman.

According to the strategist, “We think we’re entering an environment in which technology has rapidly expanded its influence and will impact almost every industry.” It will be harder to distinguish between technology companies and non-technology companies as we move forward, which should open up more opportunities for all sectors.

Hedge fund investors could be on the verge of a comeback, as they outperformed the market last month in volatile January. Hedge funds lost 1.7% on average last month, compared to S&P 500’s 5.3% loss in its worst January since 2009, according to HFR data.