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Active managers fail to beat the market again

Most active fund managers in the US failed to beat the market over the past year, according to another dispiriting report on an industry that often claims it will come into its own during periods of volatility.

In a majority of the categories of US equity funds, the average active manager underperformed the benchmark index, according to the latest semi-annual report on fund manager performance from S&P Global.

US fixed-income managers were also challenged by choppy market conditions. The majority of bond funds were unable to keep up with their benchmarks in the year to June 30, the report showed, citing the difficulties posed by the US/China trade war and a global pandemic.

“It was a lot for active managers to navigate and most were not up to the task,” the report’s authors wrote.

The semi-annual report, known as the S&P Indices Versus Active scorecard, or Spiva, is published by S&P Dow Jones indices, a division of S&P Global.

“In 11 out of the 18 categories of domestic equity funds, the majority of funds continued to underperform their benchmarks,” said S&P Global.

Overall, 67 per cent of the actively managed US mutual funds that invest in domestic equities were beaten by their benchmarks, when their returns are calculated net of fees. But there were positive results in some categories: 56 per cent of funds focused on mid-caps and 53 per cent of funds invested in small-caps outperformed their benchmarks over the one-year period.

The latest performance figures reinforce a grim period for active managers over more than a decade, marked by the steady rise of passive strategies that track an index and charge far less in terms of fees.

Bank of America this month highlighted that passive strategies account “for 46 per cent of all US domiciled fund assets” and that has climbed from about a share of one-fifth in 2009.

Over the past decade, “both growth and value funds underperformed their benchmarks”, said S&P Global.

Active managers are generally seen as having a better chance of negotiating volatile markets, but periods characterised by such trading conditions in recent years have not been catalysts for stronger performance. Measures of US equity volatility have remained well above average this year and in spite of new highs in the S&P 500 during the summer.


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