Should the spurious claims by supporters of the active fund management industry be finally laid to rest?
Investors have been much more inclined to choose passive funds in recent years – driven by increasing awareness about the negative impact of high fees and publicly available figures on the long-term underperformance of active managers. Yet a favoured opinion from proponents of active management persists: that active managers will outperform during a downturn.
New evidence is emerging that – again – this is not the case.
The current coronavirus-fuelled disruption in markets has created the kind of conditions where active managers should, in theory, thrive. However, our analysis of Morningstar data for the turbulent first quarter of 2020 show that active managers have failed to outperform in regions across the world.
The UK has proved to be particularly challenging: with an active peer group underperforming a leading FTSE All-share ETF by 3.5% over the period. This is probably due to their enduring preference for smaller companies which markedly underperformed larger ones.
Source: Morningstar, Bloomberg. Peer groups used are Investment Association sectors. All returns shown net of fees in GBP from 31st December 2019 to 31st March 2020.
These findings are reinforced by articles this week in the Financial Times and The Telegraph, which show how difficult outperformance is to achieve.