NEW YORK — The daredevils are winning big this year. Investors who bought the riskiest stocks when the economic recovery was in doubt this year are clocking the biggest gains. Among them: stocks from companies at risk of defaulting on their debt, ones already priced high and those that other investors bet would drop fast. Returns from this dicey lot are as much as double the gains in the broad market.
“Greed is increasing, and people are going to risky stocks for higher return,” says Paul Hickey, co-founder of stock researcher Bespoke Investment Group.
Consider shares of companies that rating agencies think could stiff lenders. Stocks of so-called junk-rated companies rose 19 percent from the start of the year through Dec. 16, according to Bespoke. By comparison, those of stable and flush companies with ratings of AA or higher returned 6 percent.
Typically, riskier stocks rise the most early in recoveries because they fall the most in the recessions preceding them. Eventually, investors shift money into bigger, more stable companies as the recovery gains steam.
But this time, 21 months into the rally, investors still prefer the dangerous over the dull.
“We spent most of the year worried about earnings and a double dip,” says Mark Bronzo, manager of Security Global’s big company fund. But then “earnings came in better than expected and people are playing catch-up.”
