Two-thirds of actively managed funds investing in eurozone equities failed to beat the S&P Eurozone broad market index over five years, according to new research.
Meanwhile, four-fifths of US equity funds and 88% of emerging market equity funds failed to beat their corresponding benchmarks over the same five-year period, according to research by S&P Dow Jones Indices.
The research adds fuel to the opponents of active management, who say passive funds such as index trackers, which aim to match their benchmark and not exceed it, offer investors better performance at lower cost than active funds.
However, there was one fund type in the S&P Indices Versus Active Funds Scorecard in which active managers outperformed their benchmark consistently over one, three and five-year periods – UK equity funds.
According to the research, 86% of actively managed UK equity funds beat the S&P UK broad market index over five years, and nearly 90% beat it over one year.
Aye Soe, director, index research and design, and Tim Edwards, director, index investment strategy at S&P Dow Jones Indices, say UK equity managers' success may be explained by them weighting their portfolios away from the largest cap-weighted stocks in the index, which performed poorly compared with other stocks over the study period.
They say “an unusually wide spread among manager returns – and the remarkable outperformance of UK equities outside a handful of the largest UK companies – suggests that perhaps such performance was reward for a judicious and timely tilt away from the behemoths of the London Stock Exchange.”
In calling into question the value of active management, the S&P Dow Jones Indices report is reminiscent of a similar study by the Pensions Institute at Cass Business School in the UK, published in June.
The Pensions Institute's findings were more damning to active funds, concluding that 99% of active funds in the study had failed to beat their benchmark.
The Pensions Institute study looked at UK equity funds over the ten years from 1998 and 2008 and attempted to take into account all operating and trading costs.
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