Where and when active management pays off

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.

What do you think about the issues raised by this story? Email us on to let us know.