Active fund managers had more success in home markets last year

Denmark and Switzerland were two of the single-country active equity fund groups where European fund managers largely beat the local S&P benchmark in 2016, S&P said.

But otherwise, the majority of fund managers performed poorly against pan-European benchmarks across all time horizons analysed, according to data.

Even funds invested in Denmark and Switzerland started to falter after one year.

Almost nine in ten pan-Europe funds denominated in euros underperformed the S&P Europe 350 benchmark over ten years.

The underperformance for euro-denominated funds occurred as the economic outlook became more benign, said Daniel Ung, director of global research & design at S&P Dow Jones Indices and author of the ‘Spiva Scorecard’.

Looked at more positively, about 20% of fund managers beat the S&P Europe 350 benchmark in 2016 and about a quarter beat it over three and five years.

Underperformance was “substantially higher” in actively managed global equity, US equity and emerging market equity funds, Ung said.

“Emerging market equity funds badly underperformed the benchmark over all time periods, with every single fund underperforming over a ten year time period,” Ung said.

Just over 90% of the funds analysed based on Morningstar data and including Ucits funds sold outside Europe underperformed in emerging markets over the past year.Active managers are considered to be able to add more value in emerging markets as these markets are less efficient in contrast to developed markets, which are widely accepted as being harder to beat, particularly the US.

The Scorecard also showed a “four-fold” increase in underperformance in UK active equity funds in the past year.

S&P said its Scorecard, first published 15 years ago, is the “de facto scorekeeper of the ongoing active versus passive debate”.

“While the report will not end the debate on active versus passive investing, we hope to make a meaningful contribution by examining market segments in which one strategy might work better than the other,” said Ung in the report.