Long-term performance of active and passive funds across major markets

Research from BMO Global Asset Management’s multi-manager team reveals there are distinct markets where the probability of active funds outperforming the index over the long-term is greater, while there are other markets where it has proven more challenging to generate alpha.

Research from the team – co-managed by Rob Burdett and Gary Potter – shows of the seven popular sectors within the Lipper Global universe, the top performing active managers have delivered as much as three times their index benchmark over 10 years; although the index has tended to beat the average manager year by year. With the exception of the US, where the best performing fund over the past 10 years was a tracker, active funds were significant outperformers. In the UK sector, the best performing active fund outperformed the index by a multiple of 3.1x.

Rob Burdett, co-head of multi-manager at BMO Global Asset Management, commented: “Passives have undergone exponential growth over the last 10 years, with the number of funds in the major global Lipper sectors having increased by 400 per cent. This growth has increased the influence of passives on the average fund returns. Nonetheless, our research shows that a hybrid investment approach of active and passive funds over the long-term means investors can navigate different market conditions. Since the launch of the F&C Lifestyle fund range 10 years ago, we have invested in a variety of active fund managers which have delivered outperformance for our portfolios, particularly those managers investing in Emerging Markets, Asia, UK and Europe.”

Number of index funds rockets, but be aware of the differential in performance
There are 1,691 funds registered for sale in the UK within the seven popular sectors within the Lipper Global universe, of which 343 are passive. A fifth of these passive funds (21%) existed 10 years ago, with the Equity Emerging Markets sector experiencing the highest percentage of growth in the number of funds, increasing from two to 49 today.

However, over ten years, the research showed there are large differences between the performances of index funds. For example, the difference between the best and worst UK passive fund ranges between 99.5% and 18.3%, due to choice of index benchmark, charges, dividend policy, gearing, currency and tracking methodology.

UK’s first risk targeted fund range celebrate a decade
Coinciding with this analysis, the F&C Lifestyle fund range – the UK’s first risk targeted funds – have reached their 10 year anniversary. Aligned to investors’ attitude to risk, the asset allocation and volatility constraints of the five funds are designed to align with client risk profiles three to seven on Distribution Technology’s Dynamic Planner. Through having the ability to tilt the asset allocation of the portfolios by five per cent in, the team has the ability to under and overweight markets globally through investing in active and passive funds. The funds are managed by the Multi-Manager team at BMO Global Asset Management, co-headed by Rob Burdett and Gary Potter.

Paul Green, investment manager in the multi-manager team at BMO Global Asset Management, said: “The F&C Lifestyle fund range was launched 10 years ago with the premise of targeting a specific level of risk in line with the financial circumstances of investors. Demand for risk targeted funds shows no sign of abating as investors increasingly seek funds that can invest across multiple asset classes and markets in cost efficient way. Our fund range is testament to this, having amassed £915m in assets over the last decade.”

Ridhima Sharma
Ridhima Sharma speaks German and is DACH Correspondent for InvestmentEurope. She has more than 8 years of experience in the media industry. Before joining us, she was working in India and covering automotive and lifestyle sectors. Over the years many of her stories have been published in various magazines across India.

Read more from Ridhima Sharma

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