Nine out of 10 US equity funds failed to beat the market over the past year, according to a study that undermines active managers’ claims that they can outperform in more volatile markets.
The semi-annual report on fund manager returns, produced by S&P Global, has long been depressing reading for professional stockpickers, but the scale of the disappointment in the new figures is likely to fuel further outflows from an industry already under pressure.
Money has been draining from actively managed funds to index-trackers at an accelerating pace this year.
The S&P Indices Versus Active scorecard shows that 90.2 per cent of the actively managed US mutual funds that invest in domestic equities were beaten by their benchmarks, when their returns are calculated net of fees.
There was not a single category of domestic fund - whether investing in large-caps, small-caps or a combination, or favouring growth stocks or value stocks - in which more than a quarter of managers succeeded in beating their category benchmark.
“There is nothing redeeming to say about the managers in the equity space,” said Aye Soe, global research director at S&P. “They said they would provide downside protection and add value in choppy markets. This was their chance to prove themselves and earn their paychecks, but across every category they underperformed. It is embarrassing.”
The latest report covered the 12 months to June 30, which included the summer 2015 market swoon, the rollercoaster markets of January and February and the late June post-Brexit sell-off. It adds to a 14-year body of S&P data that confirms most US equities managers underperform the index, regardless of the category of fund and regardless of the timeframe. Over the past 10 years, 87.5 per cent of domestic equity funds underperformed.
Outside US equities, there were pockets of positive news. Stockpickers specialising in emerging markets were more likely than not to beat a benchmark in the past year - only 42.2 per cent underperformed - and there were categories of fixed income fund where the average manager beat the index.
Some $328bn flowed out of actively managed mutual funds in the US in the year to July 31, according to Morningstar, while $401bn flowed into funds that passively track an index, such as those run by Vanguard and BlackRock’s iShares division.
