While last year marked spectacular returns for domestic equity managers, most still struggled to outperform their benchmarks. But their fortunes may change amid COVID-19 outbreak-induced market volatility.

In 2019, 70% of domestic equity funds underperformed the S&P Composite 1500, a blended all-cap index of U.S.-listed stocks, according to the SPIVA U.S. Scorecard Year-End 2918. It was the fourth-worst performance of domestic active energy managers since 2001.

But as the second quarter of 2020 begins, the market environment has changed drastically, according to the report. While there isn’t yet enough data to determine how active managers have performed so far this year relative to their benchmarks, the report’s authors point out that historically during a downturn a higher percentage active domestic equity managers underperform benchmark indexes as markets have fallen and searched for a bottom. Once a bottom is reached, fewer managers underperform their benchmarks as prices recover.

In fact, despite years of results documenting active managers' difficulty beating benchmarks, the scorecard’s authors believe now that the market environment will now be supportive of active managers as a greater dispersion of performance between listed companies enhances their ability to produce differentiated returns.

“For market timers hoping to capitalize during drawdowns, sector and industry rotators, and stock pickers requiring dispersion to differentiate their returns from the herd, March 2020 offered record opportunities for glory (or embarrassment) in global equities,” said Tim Edwards, managing director, index investment strategy for S&P Dow Jones Indices, in released comments.

Back to 2019, where a majority of large-cap managers (71%) underperformed the S&P 500 for the tenth consecutive one-year period. Nearly nine-in-10 large-cap funds (89%) have underperformed the S&P 500 over the last decade.

On the other hand, a majority of mid-cap funds, 68%, beat the S&P MidCap 400 in 2019, the third consecutive year they have done so, and 62% of small-cap funds were able to outperform the S&P SmallCap 600. Yet over the last 10 years, just 16% of mid-cap funds and 11% of small-cap funds were able to outperform their respective S&P indices.

Value funds were significantly more likely to underperform their benchmarks than blended and growth funds – however, equity active manager performance relative to S&P Dow Jones Indices Benchmarks has improved on a year-over-year basis in most categories.

Government bond managers fared even worse. In 2019, majorities of long-term (98%), intermediate-term (69%) and short-term (73%) bond managers underperformed their indices, respectively. Over the decade ending Dec. 31, 2019, 99% of long-term government bond managers underperformed their benchmarks.

Long-term investment-grade bond funds underperformed their benchmark index at a 95% clip in 2019, but just 68% of intermediate-term and 63% of short-term funds underperformed. As a whole, 65% of high-yield funds underperformed their benchmark for the year – making it one of the more successful years for active high-yield managers since 2005. In aggregate, 97% of active investment grade and high yield corporate bond funds fell short of their benchmarks over the decade.

First « 1 2 » Next