Active managers failed to impress in the year to June 2022 compared to their passive counterparts, Morningstar’s semi-annual European Active/Passive Barometer has revealed, as market headwinds upended both European equities and bonds across the fund market.
The barometer, which measures the performance of Europe-domiciled active funds against passive peers in their respective Morningstar categories, and covers 30,000 active and passive Europe-domiciled funds across €7 trillion in assets, revealed that 35% of active funds in the 43 equity categories analysed survived and outperformed their passive peers over the period.
In the first half of 2022, financial markets faced myriad headwinds as tensions in energy markets amassed in the wake of Russia’s invasion of Ukraine, driving up inflation.
Both equity and bond markets have experienced significant falls.
Just seven equity categories demonstrated a rate of success for active managers above 50%, Morningstar found. The average success rate for active fixed-income managers in 23 categories was slightly higher at 40%. Seven categories showed a one-year success rate above 50%.
Long-term success rates for active managers remained low overall, with the average rate of success for active equity managers over the past decade at 24%, while the rate for fixed-income active managers was 21%.
Over the 10 years through June 2022, success rates for active managers were less than 25% in over half of the 72 categories surveyed across broad asset classes.
Just three categories – global equity income, UK equity income, and Switzerland property – delivered a success rate for active managers over 50%.
Survivorship rates were positively correlated with odds for success, Morningstar said, and passive funds had better odds of surviving over the long term compared to active funds.
“Our Active/Passive Barometer is a useful measuring stick that can help investors calibrate the odds of succeeding with active funds in different areas based on recent trends and longer-term history,” said Dimitar Boyadzhiev, senior manager research analyst, passive strategies at Morningstar.
“Comparing funds’ mortality rates between active and passive shows that the latter have had better odds of surviving over the long term. The contrast is starkest over longer periods.”
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