Actively managed funds four per cent worse than benchmark per year

The average fund underperformed its benchmark by four per cent, the London Stock Exchange said.

Less than a third of actively managed funds globally were not able to beat their benchmarks over the last year, new data from the London Stock Exchange Group (LSEG) has revealed.

Funds on average performed close to four per cent worse than their benchmark over the last year, the data showed, leaving many questioning the abilities of active managers to beat the market.

Sustainable-focused funds are some of the worst offenders. Of all ESG funds examined, only 24 per cent managed to beat their benchmark, compared to 38 per cent of conventional funds.

This led to an average underperformance of 4.9 per cent for ESG funds, compared to 3.2 per cent for conventional funds. LSEG speculated that this may be because of the overwhelming success of the Magnificent Seven in the last year, which are often not included in ESG portfolios.

A large part of the total underperformance from all funds was fees. The average equity fund examined by LSEG has a total expense ratio of 1.48 per cent, leading to roughly 37 per cent of the average underperformance compared to the benchmark.

Passive equity products overtook the number of assets in actively managed funds last year for the first time, thanks largely to their lower fees.

Despite a rising focus on asset products and pressure on active asset managers to show their skills, they are still falling behind.

The tumultuous time period could have been one for asset managers to show “their asset selection and timing skills since the markets were driven by a number of different factors,” said Detlef Glow, head of Lipper EMEA research at LSEG said.

“Since this study was conducted over a limited time period, the results have only a limited prediction power for the long-term results of active managers. Nevertheless, studies over different time periods have shown similar patterns,” he added.