Key Points:
- Reindeer were involved in an experiment where they picked stocks from the Wall Street Journal.
- In the first month, the reindeer outperformed the S&P 500 by 4.9%.
- The reindeer exhibited a preference for momentum stocks in the consumer, technology, and health care sectors.
- The average reindeer portfolio lagged the S&P 500 by 10.4% through December 13.
- However, individual reindeer had significantly different performances, with some beating the S&P 500 by more than 8 percentage points.
- The reindeer portfolios overall underperformed the average active fund manager.
Earlier this year, an experiment was conducted by researchers at Dartmouth College, where reindeer were given the opportunity to pick stocks from the Wall Street Journal. Surprisingly, the reindeer performed quite well in the first month, outperforming the S&P 500 by 4.9%. As the year comes to a close and the reindeer prepare for their Christmas Eve sleigh ride, it’s worth checking in on their investment choices.
Rudolph and Blitzen opted for market exchange-traded funds (ETFs), specifically the Vanguard Small-Cap ETF and the Vanguard Emerging Market ETF. However, the other reindeer followed their own active investment strategies and focused on individual stocks. While the exact details of their investment processes and analysis are unknown, their portfolios reveal a strong preference for momentum stocks in the consumer, technology, and health care sectors.
Unfortunately, these three sectors have not performed well this year, resulting in the average reindeer portfolio lagging behind the S&P 500 by 10.4% as of December 13. Furthermore, the reindeer typically maintained concentrated, five-stock portfolios, leading to a significant tracking error of 6.9% and an information ratio of -1.5.
Despite the underperformance of the reindeer portfolios as a whole, there were notable variations among the individual reindeer. Cupid, for example, had a highly successful year, beating the S&P 500 by more than 8 percentage points. His strategy involved a core-satellite approach, investing in ETFs such as the Schwab US Broad Market ETF, the Invesco QQQ Trust, and the iShares 7–10 Year Treasury Bond ETF, along with satellite investments in railway leasing company GATX and insulator manufacturer Aspen Aerogels. The latter has seen a remarkable 234% increase in value year-to-date.
Another reindeer, Dasher, followed a classic stock-picker strategy and achieved excellent results. Four out of his five selected stocks outperformed the market. In contrast, Boris had a disastrous year, losing 20.3% of his investment and underperforming the S&P 500 by 46%. None of Boris’s five stocks came close to matching the market’s performance, except for alcoholic beverage company Constellation Brands, which saw positive returns.
While eight out of the 11 reindeer underperformed the S&P 500 this year, it is worth noting that the reindeer portfolios fared better than the average active fund manager. Seven out of 11 reindeer managed to outperform these managers, and the average reindeer portfolio slightly lagged the average active fund performance by 1.8%.
Ultimately, while the reindeer did not perform exceptionally well as a group, they demonstrate the challenges of beating a passive benchmark. Their results suggest that blindly picking investments from the Wall Street Journal may not be as effective as using a more sophisticated investment strategy. As for the reindeer posing an existential threat to the fund industry, the answer remains uncertain, but for now, their investment choices are an interesting study in animal behavior and market performance.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. The opinions expressed are solely those of the author and do not necessarily reflect the views of pankajsihag.com or the author’s employer.
