Strategic Investment Research Group

Is the Tide Starting to Turn for Active Managers?

After roughly seven years of experiencing subpar returns from active large cap equity managers, we have seen a pronounced shift away from active strategies towards passively managed index funds and ETFs.  2016 was an especially difficult year with only 22% outperforming their benchmarks.  The inability of active managers to outperform the index confirms for some investors what a segment of the investment community says is an impossible task - to outperform the market after fees.  Our perspective is that active management has always been a difficult task, requiring investors to identify skilled managers with a competitive edge.  Performance has, admittedly, been atypically poor over the past few years.  However, we don't think that recent challenges represent a secular decline in the art of stock picking.  Rather, many of the headwinds that active managers have faced are attributable to market conditions that are temporary and not structural.  Within this context, we will explain the drivers of active manager performance, market dynamics over the past five years, and why we believe these headwinds are starting to fade.

 

Post-Election Active Management Performance

President-elect Trump's pro-growth agenda is widely believed to be the impetus driving the equity markets higher since the election on November 8.  However, in looking more closely at the data, the market has been in a "risk-on" regime since mid-February, the bond proxy trade withstanding.  This was largely centered on technology stocks and higher beta.

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