Active fund managers recorded markedly better performance in 2017 than they did a year earlier, with the proportion of funds that beat their benchmarks increasing in 16 of the 17 most relevant equity and bond peer groups.
Active funds in the “Equities Germany” segment showed particularly impressive performance in comparison to the relevant benchmark.
The analysis provided by the rating agency Scope is based on more than 3,000 investment funds (UCITS) authorized for distributing in Germany.
Based on an analysis of outperformance ratios, Scope found that of 2,100 equity funds observed, almost 53 per cent – a little more than one in two actively-managed funds – beat their benchmarks. In 2016, that figure was only 23 per cent. The outperformance ratio measures the proportion of actively-managed funds that beat their benchmarks.
In 2017, four of the eight peer groups achieved an outperformance ratio of over 50 per cent. This means that within those peer groups, a majority of active funds beat their benchmarks. By comparison: in 2016, only “Equities Japan” hit an outperformance ratio of 50 per cent.
“Equities Germany” produced the most impressive result of 2017, with an outperformance ratio of 87 per cent. This means that seven out of eight actively-managed equity funds with a focus on German securities exceeded the benchmark. This is in stark contrast to 2016, when only 15 per cent of the funds attained this accolade.
At the other end of the spectrum, only a third of active funds in the “Equities North America” segment outperformed the MSCI USA Standard Core. But even this was an improvement over 2016, when only around a quarter of funds exceeded the benchmark.
Bond funds also showed better outperformance metrics. Of the approximately 1,100 bond funds Scope observed in 2017, the ratio rose in eight of the nine peer groups relative to 2016. Overall, 50 per cent of the bond funds beat their 2017 benchmark against only 33 per cent in 2016.
“Bonds EURO Corp Investment-Grade” and “Bonds Global Currencies” were particularly successful, with many active funds outperforming.
Even though the outperformance ratio of many of the active peer groups in the Scope study significantly increased relative to 2016, the extent to which they beat their benchmarks in 2017 could be better. With a ratio of just over 50 per cent, the probability of choosing an active fund which will exceed the benchmark is only marginally higher than tossing a coin. In order words: too many funds failed to beat their benchmark in 2017.
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