Research from S&P Dow Jones Indices has said the majority of active US, global and emerging market funds on sale in Europe have failed to outperform their respective benchmarks over the past decade.
Remarkably, 99 per cent of actively managed funds invested in US equities failed to outperform the S&P 500 since 2006, according to the research, and for global equity funds the figure stood at 98 per cent when compared to the S&P Global 1200 index. Meanwhile, only 3 per cent of global emerging market funds were cited as beating their benchmark.
These appear to be damning figures for the active fund management industry. Surely more active managers than this should have outperformed – even if only by luck?
The S&P Dow Jones research examined the performance of some 25,000 funds, much larger than the universe we have to choose from in the UK, so I thought it would be interesting to compare how funds in the relevant Investment Association sectors have fared over a 10-year period – would they be able to provide a better ‘hit rate’ than the European survey? Thankfully, they did.
According to FE Analytics, of the 72 funds in the IA North America sector, 42 are active funds with a performance record since October 2006. Twelve of these have outperformed the S&P 500 over 10 years – almost 30 per cent. Now, some of these will have done so largely for stylistic reasons: Schroder US Mid Cap, for example, was the top fund over the period and the S&P 500 is not a valid benchmark.
However, a decent number of funds whose stated objective is to beat the S&P 500 did so by a significant margin after charges, including Fidelity American Special Situations, Threadneedle American and Baillie Gifford American, returning 192, 190 and 180 per cent, respectively, compared with 171 per cent for the S&P 500.
We cannot attribute any such outperformance to skill rather than luck without further investigation and analysis, but it does suggest that attempting to identify fund managers who consistently generate alpha is not an entirely fruitless task – even in the US market which is widely acknowledged as difficult to beat.
For the IA Global and IA Global Emerging Markets sectors the results were broadly similar. Twenty nine out of a possible 100 active IA Global funds beat the MSCI AC World over 10 years – although a handful of these stand out as sector specialists or smaller companies mandates that you would expect to outperform given specific tailwinds.
Meanwhile, eight out of 21 IA Global Emerging Markets funds beat the MSCI Emerging Markets over the same period.
These results, while not particularly impressive, are not a complete disaster. And it is worth pointing out that active funds have much better relative results in other sectors, such as the UK and European equities.
I can only conclude that the UK’s available active funds are superior in terms of quality and/or charges to the continental average – although that doesn’t necessarily mean we are blessed with a bounty of stockpicking talent.