The fourth quarter of 2024 was a veritable master class in the difference between active and passive investment management. While holding passive equity exposure to the S&P 500 and Nasdaq 100 indexes has been a winning strategy for investors since late 2022, stock market performance has since become highly bifurcated and effectively dominated by just 100 or so select issues out of an investable universe of 48,000 publicly traded companies worldwide. Even within the technology sector itself, the distribution of returns has been defined by fat tails (extreme price movements that occur at the edges of a probability distribution of returns). We believe much of this can be attributed to the shifting sands in Washington, D.C.
The inauguration of a new White House administration promises to precipitate much change in 2025 and beyond. One key difference between the new administration and the old one is the new administration has made it clear that it likes to pick the winners and losers. As such, we believe the world has embarked upon a new age favoring active investment management, whereby returns derived from knowledge and understanding of what you own, and why you own it, will overwhelm passive index returns going forward.
The performance of the indexes masks the true story of a bifurcated market driven by a few idiosyncratic outperformers.
Some Winners & Losers
SoundHound AI (SOUN) more than tripled during the quarter (+325.7%). Intuitive Machines (LUNR) stock gained 125.6% during the quarter. Rocket Labs USA (RKLB) vaulted 161.8% higher during the period.
Weak spots included Doosan Robotics, Keyence Corp, and Infineon Technologies AG. The former two names continue to have strong demand outlooks.
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