According to new data, just half of active managers performed better in monetary terms – after fees were taken into account – than their passive counterparts during the aftermath of the coronavirus-induced market crash.
The figures, provided by Albemarle Street Partners, show 50.6 per cent of active equity managers beat their comparative tracker in the three months to June. This compared to 54 per cent in the first quarter of 2020.
Charlie Parker, managing director of Albemarle Street Partners, said: “Q2 was a much harder market for active managers to beat than Q1.
“Whereas managers could rapidly sell-out of the worst hit parts of the market in the first quarter, it was much harder to capture the snap-back in Q2.”
Albemarle’s ‘active payback’ research calculates in pounds and pence how much a fund has earned after fees over and above an appropriate passive comparison.
The top-performing fund compared to its tracker in the three months to June – the Morgan Stanley US Growth fund – returned 39p in the pound more than its passive equivalent after active fees were taken into account.
Therefore, for every pound returned by the equivalent tracker, investors received £1.39 if invested in the Morgan Stanley portfolio.
Schroder’s ISF Global Energy fund was the next best performer in terms of ‘active payback’, providing 36p more in the pound than its passive equivalent, while MFM Techinvest Special Solutions, Baillie Gifford American and Morgan Stanley’s US Advantage fund made up the top five.
| Q2 | |
| Fund | 'Active Payback' |
| Morgan Stanley US Growth | £0.39 |
| Schroder ISF Global Energy | £0.36 |
| MFM Techinvest Special Situations | £0.35 |
| Baillie Gifford American | £0.33 |
| Morgan Stanley US Growth | £0.26 |
| L&G Growth Trust | £0.24 |
| Aubrey Global Conviction | £0.20 |
| Merian UK Mid Cap | £0.18 |
| Invesco Global Focus | £0.18 |
Where to turn to active
The proportion of active managers beating their passive benchmark varied significantly from sector to sector.
Active managers were leaders in the Investment Association’s UK Smaller Companies sector, with 88 per cent of funds beating their tracker equivalent in pounds and pence terms, while 74 per cent of managers in the IA European Smaller Companies sector outperformed passive funds after fees.
The picture for active management was less positive elsewhere, however. Only 40 per cent of active funds delivered ‘active payback’ in the Europe ex UK sector, while less than a third were worth their fees in the Asia Pacific, Global and North America sectors.
Just a fifth (21 per cent) of funds in the IA UK All Companies sector saw better returns in pounds and pence terms after fees than their passive equivalents.
Tom Sparke, investment manager at GDIM, said: “There are definitely places that are more suited to active management and those that are better served by a passive fund.
“Personally, I believe that active funds in most areas have a better chance of out-performance at the moment as there are so many clear distinctions between sectors which are flourishing and those that are struggling or are structurally challenged.”
Mr Sparke said he often used passive funds to gain sovereign bond exposure as government bonds were a “vanilla asset” that tended to “always serve the same purpose”, while he opted for active management in regions where “unknown dangers lurk”, such as emerging markets.
Ben Yearsley, investment consultant at Fairview Investing, agreed. He said he would not “blindly use passive or active” but instead “pick the right strategy for the right market or sector”.
He said: “One key area where passive should be avoided is corporate bonds, where it is more about avoiding losers than picking winners.”
The last five years
Over the past five years, just 40 per cent of active managers beat their passive counterparts once fees were taken into account, according to the research.
The best-performing fund house – after all the assets a company runs and the charges levied have been taken into account – over the five years was Baillie Gifford, who returned 41p in the pound more than passive equivalent funds.
Baillie Gifford was far ahead of its rivals in terms of ‘active payback’. The next best-performer was Baring Fund Managers, earning 18p in the pound after fees, while T Rowe Price, Jupiter Asset Management and Columbia Threadneedle also made the top five.
| The last five years | |
| Firm | 'Active Payback' |
| Baillie Gifford | £0.41 |
| Baring Fund Managers | £0.18 |
| T. Rowe Price | £0.14 |
| Jupiter Asset Managers | £0.10 |
| Columbia Threadneedle | £0.10 |
Ryan Hughes, head of active portfolios at AJ Bell, said: “The reality is that we know the majority of active managers out there are frankly not very good, but it doesn’t mean that we should view all active managers in this way.
“Baillie Gifford has demonstrated that active managers can succeed just as Fundsmith and Lindsell Train have among numerous others.”
Paul Stocks, financial services director at Dobson and Hodge, said he saw the merits of both passive and active management.
He added: “Costs are the key concern with active, however where ‘active share’ is sufficiently high, there’s scope to cover the costs where they outperform.”
Meanwhile Nick Wood, fund expert at Quilter, thought active managers would have a better chance of outperforming net of fees looking forward as management fees were “coming down significantly” in the active world.
imogen.tew@ft.com
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