Lyxor study: Active manager outperformance improves in 2017

Summary

The number of active managers in Europe beating their benchmarks in 2017 rose to 44%, an increase on the 28% recorded the previous year, according to data from Lyxor Asset Management. The research, which studied over 6,000 funds across 23 different universes with assets under management totalling €1.4trn, found equity managers posted the most robust results, with 47% of managers outperforming in 2017 versus just 20% the previous year, with quality and growth managers seeing the strongest performance.

As expected, in less efficient markets or more specific markets such as European small-caps or Germany, active managers recorded their strongest results, while the worst were found in the US, UK, China and large-cap universes. There was also a significant improvement in the fixed income space where 39% of active managers outperformed, up from 7% in 2016.

The best performing bond managers were focused on large and diversified bond markets such as global, US investment grade and high-yield corporate bonds, while narrower bond segments such as euro high yield and euro inflation-linked universes struggled.

The firm said correctly allocating between active and passive funds is a key driver of returns, because in more inefficient markets active managers tend to outperform.

For 2018, the firm said markets will see far more volatility with the rise of geopolitical uncertainty and the unwinding of quantitative easing (QE), meaning the choice between active and passive vehicles has become even more important.

Implications

Marlene Hassine, head of ETF research at Lyxor, said: “The challenge for investors is recognising the specific advantages of each investment tool in order to find the right balance between passive and active management in their portfolios. Based on the one-year average of outperforming active funds in our universes over the last decade of 34%, our study suggests that within a global portfolio, most of the added value of active management can be captured by allocating 30% to 40% to active funds, while the remaining 60% to 70% can be invested in passive or smart beta funds.”

Philippe Mitaine, senior fund analyst at Lyxor, added: “The study has introduced the monitoring of the dispersion of the relative performance of active managers around benchmarks in 2017. The lower dispersion last year illustrates the higher difficulty to pick managers outperforming strongly their benchmark and the crucial role of informed fund selection to meet long-term portfolio return objectives.”

Link

https://www.investmentweek.co.uk/investment-week/news/3030844/less-than-half-of-active-managers-in-europe-outperform-their-benchmarks-in-2017

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