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DFM use of active Global funds belies data

Interesting data has popped into our inbox from AJ Bell, showing that only a third of active funds have beaten a passive alternative over the past five years, across a range of the largest Investment Association sectors. 

It's the Global and North America sectors which provide the least bang for an investor’s actively managed buck, with just 26 and 25 per cent of funds in those sectors beating the index.

That those two should be the hardest to beat the active managers in is hardly a surprise, as those markets are likely to be among the most analysed and watched by investors globally.

Quite what the excuse is for only 31 per cent of UK All Companies funds beating the passive alternative over five years is anyone’s guess, but it may prompt more questions about whether there are simply too many active funds in this sector relative to the size of the investable universe. 

The sectors where the actively managed buck had a greater chance of providing value were, as we have already alluded to, Asia Pacific ex-Japan and Europe ex-UK, where 47 and 46 per cent of active funds beat their passive equivalent over the time period.

Indeed as we have covered in recent weeks, only 16 per cent of active Global funds held by DFMs outperformed the market - one of the worst results in the sectors we have analysed.

DFMs performed better in North America at 28 per cent, but that was a fairly mid-table result compared to markets like Europe and Asia, where 36 and 34 per cent respectively of their active picks outperformed.

In many respects, DFMs are already on-board with this: 38 per cent of North American holdings in our database are passive while the same is true of just 10 per cent of Asia Pacific holdings.

Though perhaps it does prompt questions about whether a higher proportion of Global growth holdings in our database should be passive, given they currently account for just 14 per cent.

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