BlackRock’s move this week to replace dozens of fund managers and analysts with robotic stock-selection tools reflects a powerful and somewhat puzzling feature of today’s market: No one does stock picking anymore, it’s too crowded.
Yogi Berra’s paradoxical quip about an unfashionably congested restaurant applies to the traditional Wall Street pursuit of selecting the best stocks. And even the world’s largest asset manager, with $5 trillion under its control, is not insulated from the pressure. Wall Street firms caught in the middle of these movements have been generating pointed research on these trends for institutional clients, as both the “sell side” and the “buy side” see their business models upended by the flow of trillions of dollars in cheap, technology-enabled money that doesn’t need their help. In a report last week, global strategists at Citi noted that there’s been nearly a trillion dollar worldwide swing from active to passive funds in the past 12 months, according to fund tracking firm EPFR. Some $542 billion entered index funds while $442 billion departed active portfolios.