Financial Industry Insights from Advisors Asset Management


Kick the Football, Charlie Brown!

You’ve read it before — the classic Peanuts story where Lucy asks Charlie Brown to kick the football only to pull it away at the last moment, sending gullible ‘ole Charlie Brown flat on his back. In fact, Peanuts author Charles Schulz is credited with publishing the printed strip for 37 years! Every. Single. Time. Charlie Brown gives in to trusting Lucy only to be fooled yet again.

The relationship between the Fed and market participants in 2022 resembled Charlie Brown’s failure to learn his lesson time and time again. Despite repeated commitments by the Fed to tame inflation with restrictive money policy, investors have responded with bullish behavior only to have the Fed squash attempts at these market rebounds *cue the football pull*. Throughout the year, the market has ripped higher into Fed announcements only to give back the gains (and often more) afterward (Exhibit 1).

Exhibit 1: National Association of Active Investment Managers (NAAIM) Active Manager Positioning Data versus S&P 500 Index Levels

National Association of Active Investment Managers (NAAIM) Active Manager Positioning Data versus S&P 500 Index Levels

Source: NAAIM, FactSet, Bloomberg, Morgan Stanley Research, 2022. Past performance does not guarantee future results.

‘A’ is for Alpha and Asymmetry

Howard Marks, famed investor and Oaktree founder, recently discussed the idea of delivering performance Alpha (excess return versus the market) through asymmetry. Simply put, a manager can add value by either outperforming the market during positive periods while minimizing underperformance in poor markets enough to preserve value-add, outperforming the market during negative periods while minimizing underperformance in positive markets enough to preserve value-add, or by outperforming the markets during both good and bad periods. We seek to protect on the downside while participating in market upside.

Optimism Sprinkled with a Dose of Mean Reversion

Our late co-founder, Bill Bahl, often said, “It takes an optimist to succeed in equity investing.” The firm will forever take these words to heart as we seek to buy and own companies with competitive advantages that provide long-term value through capital return and risk-adjusted total return.

In the last decade, many active managers with a high-quality philosophy faced headwinds to relative performance as muted volatility and low interest rates from the Fed created massive investor risk-taking in speculative corners of the market that pushed indices higher. This headwind abated in the second quarter of 2022 as the Fed began to pull away the punch bowl, allowing active management to again prosper.

Now that the calendar has flipped to January, investors often ask for our market predictions. While Bahl & Gaynor resists temptations to offer an outlook on the short-term, we offer two mean-reverting market trends currently underway that support conviction in our high-quality, dividend-growth philosophy.

Ratio of Up-to-Down Days

Going back to 1951, 53.5% of S&P 500 days have yielded a positive return while 46.5% resulted in a negative return. Volatility aside (we will cover this below), an active manager with an 82% upside capture ratio (strategy return divided by the benchmark return on positive S&P 500 days) and a 78% downside capture (strategy return divided by the benchmark return on negative S&P 500 days) would generate outperformance due to its ability to participate in positive market days while protecting capital on down days.* Even in the bull market period from 1983–1999 when 54.0% of days were positive, outperformance could theoretically still be achieved!

However, in the easy money, Quantitative Easing era of the 2010s decade through 2021, the percentage of up days was nearly two percentage points above the long-term average at 55.3%. Mathematically, active managers with risk-aware philosophies were at a disadvantage. Exhibit 2 illustrates the particularly extreme headwinds faced over the five-year period from 2017–2021, with 56.7% of days being positive — over three percentage points above the long-term average! While painful for many investors, 2022 was a year of mean reversion that overshot long-term averages to the benefit of quality and safety.

Bottom-line: It doesn’t necessarily take a bear market like 2022 to see risk-aware, dividend managers outperform…. All it takes is reversion to long-term averages!

Exhibit 2: Percentage of Positive and Negative Days for the S&P 500 Over Various Time Periods

Percentage of Positive and Negative Days for the S&P 500 Over Various Time Periods

Source: Bahl & Gaynor, FactSet, Crestmont Research, 2022. Data through 12/14/2022. Past performance does not guarantee future results.


To the dismay of sell-side trading desks and their commission generation, buy-side trading activity muddled through a decade of low volume and muted volatility as investors aptly learned not to “fight the Fed” and enjoyed the fruits of a “rising tide lifts all boats” market. In essence, the market’s discernment of fundamentals, valuation and even profitability mattered less, supporting a massive migration to passive investing.

This period of low volatility (Exhibit 3) also prevented many active managers’ vital price-discovery efforts in the marketplace and hindered opportunities to outperform an indexed/passive strategy. Just as easy money and low interest rates helped suppress risk in the equity market, the reversal of such efforts starting in the second quarter of 2022 brought back volatility in a coiled-spring-like way. Nearly 90% of S&P 500 trading days in 2022 have traded in a +/-1.0% daily range, providing massive opportunities for high-quality mandated investors to outperform.

According to Strategas, statistical replication to this data tends to occur in years that follow — high volatility years tend to come in bunches (e.g., think 2000–2003).

Exhibit 3: % of Days with S&P 500 Range > 1%

% of Days with S&P 500 Range > 1%

Source: Strategas, 2022. Chart as of 12/5/2022. Past performance does not guarantee future results.

Bottom-line: As return dispersion widens in the equity market, we believe the opportunity in income-focused, high quality, disciplined investing expands.


CRN: 2023-0110-10563 R

* This is a hypothetical calculation and is not representative of any Bahl & Gaynor investment strategy.

Opinions in this piece are those of Bahl & Gaynor Investment Counsel and are not necessarily that of AAM.

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit


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