Active management is under fire once again. According to new data from Morningstar, just over half of the 263 funds in the UK All Companies sector have missed the rally since the market’s bottom in June 2012. Various commentators have been quick to seize on the research, arguing it once again raises questions about the value of paying active fund managers.
Such a stance would, however, appear disingenuous on a number of fronts. First, it ignores that 2012 as a whole was, in fact, a good year for active fund managers – and particularly in the UK. The average UK All Companies fund rose 15.1%, while the FTSE 100 was up just 9.3%. Across the Channel, meanwhile, the Eurofirst 300 index rose 16.6% over the calendar year – below the 19% jump of the average fund in the Europe ex UK sector.
“To suggest investors should not be paying fees because some active managers were not loaded up with the risky assets that have performed well since the market bounce is misguided at best.”
It also ignores that different funds have different benchmarks and intentions. One article singled out Tom Dobell’s M&G Recovery fund for not keeping up with the rally, which seems a wilful misunderstanding of the intentions of a recovery fund. It also overlooks the manager’s lengthy track record of preserving wealth in more difficult markets.
Admittedly, the risk-on, risk-off markets have been tricky for active managers to negotiate but there is plenty of evidence the active industry is taking steps to ensure better performance for investors. Bestinvest’s latest Spot the Dog list showed the amount of assets in funds that have failed to beat benchmarks over three consecutive 12-month periods, and underperformed by at least 10% over the whole three-year period (its criteria for a ‘dog’ fund), has fallen significantly to £12.1bn from £26.6bn last summer.
The whole investment industry – active and passive – is fighting against mediocrity. Active managers are reorganising their investment teams where performance is weak and there are relatively few groups complacent enough to support consistently poorly-performing managers. Equally, passive groups have edged down fees, introduced more product innovation and addressed some of the concerns over derivatives and stock lending.
The Retail Distribution Review really ought to introduce an era where investment simply becomes about the right product for the right investment need. There are times when this will be an active solution and times when it will be a passive one – but to suggest investors should not be paying fees because some active managers were not loaded up with the risky assets that have performed well since the market bounce is misguided at best.
JANUARY 2013
Important Note: Material within this article has been complied with the help of the Marketing Hub which is part of Marketing In Practice Ltd on behalf of your professional financial adviser. The contents of this document do not constitute advice and should not be taken as a recommendation to purchase or invest in any financial product. The value of a market investment can go down as well as up and you may not get back the full amount, particularly in the short term. Before taking any decisions, we suggest you seek advice from a chartered financial planner.
