Will 2017 be the year of the active manager?
18 Jul 17
Within the fund industry, 2017 was widely heralded as ‘a year for active managers’ after a long period when central bank policy and geopolitical concerns had driven asset prices. Click on the slides below to see whether, with more than half of the year gone, active managers across asset classes have been able to beat their benchmarks.
Investors could have easily outperformed the S&P 500 index this year if they had underweight the stocks (banks and other cyclicals) that had profited most from the ‘Trump trade’, while overweighting technology and healthcare names.
But most active managers ostensibly didn’t do that, and continued a streak of underperformance that has haunted them for years now.
While the S&P 500 index is up 11.05% year-to-date, US large cap blend funds (according to the Morningstar definition) are slightly behind, having returned no more than 9.97%. Given that the average management fee of the funds in the sample is 1%, the average manager also underperformed before costs.
Over the last three-year period, active managers have done even worse: while the S&P 500 index has managed an annualised return of exactly 10%, the equivalent for active funds is only 7.33%. No wonder investors have been piling into US equity index trackers in recent years.
While the underperformance of US equity funds has been less extreme this year than over the preceding period (there is also underperformance over 5 years, even though the sample is subject to survivorship), investors in the asset class still have little incentive to return to active managers.
Year-to-date, investors have funnelled a further $85.5bn into US equity ETFs according to Blackrock, while actively managed funds have seen net outflows.
Admittedly, performance looks better when using the Financial Express (FE) US equity fund universe (see graph). However, FE’s fund sample includes small- and midcap funds as well as value, growth and sector funds.
