The active comeback!* | Financial Times

This has been a no-good year for financial markets, with both bonds and stocks stinking the place out. But it has so far been a slightly less terrible year than usual for stockpickers.

S&P Global’s mid-year SPIVA scorecard on active US equity funds’ performance versus their benchmark came out today, and the big headline is that a mere 51 per cent of large-cap funds have underperformed the S&P 500.

That comes after a full 85 per cent of them fared worse than the benchmark last year, and puts them on course for their least-bad year of underperformance since 2009.

Things were a bit worse among funds that focus on smaller stocks. About 54 per cent of mid-cap and 63 per cent of small-cap funds underperformed their benchmarks in the first six months of the year.

Value managers have done okayish, while growth managers have had an awful year, with 78 per cent failing to beat their rate-rise-wrecked indices. As S&P Global said in its report:

Market downturns putatively offer abundant hunting grounds for active managers, but, in the first half of 2022, the cross-sectional relationship between market performance and the relative returns of active funds reminds us that opportunities for embarrassment were just as plentiful.

For a more detailed breakdown:

So will this performance pick-up help to turn round the fortunes of active management?

No.

As the adage goes, investors cannot eat relative performance. It doesn’t help much to know that the average active US equity manager for once did only slightly less badly than their benchmarks, especially when managers often market themselves on being able to limit losses in bear markets.

But most of all, the longer-term trend remains grimmer than grim. As you can see from the table above, only 8.2 per cent of US equity funds have managed to outperform their indices over the past decade.

Just look at the share prices of active managers like T Rowe Price, Invesco and Franklin Resources to see what the market itself thinks the future holds.