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2019 Was Another Bad Year for Active Management. Will 2020 Be Better?

Active managers underperformed their passive benchmarks across most equity and fixed income strategies last year — and that’s before accounting for fees.

Last year’s surging equity markets were fantastic for index investors — less so for investors in actively managed funds, who paid higher fees for lower returns.

According to Wilshire Associates, a majority of active managers underperformed their benchmarks across all U.S. equity strategies, including small-cap, growth, and value stocks. Most actively managed fixed-income funds also performed poorly relative to their passive indexes, including core fixed income and high yield.

The one bright spot for active managers was real estate: Around 86 percent of real estate investment trusts beat the REIT index in 2019, according to Wilshire. A majority of active managers also outperformed in emerging markets and developed markets outside the U.S. and Canada. However, Wilshire’s study analyzed gross-of-fee returns — meaning that at least some, if not all, of the reported excess returns were likely offset by fees.

Of course, the market environment in 2020 is already vastly different from what investors experienced in 2019. The Standard & Poor’s 500 stock index fell 20 percent in the first quarter, erasing much of 2019’s 29 percent gain. Other developed and emerging market stock markets also plunged, with the MSCI World Index declining by 21 percent.

“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,” Tim Edwards, a managing director at S&P Dow Jones Indices, said in a statement.

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Like Wilshire, S&P Dow Jones Indices analyzed the performance of active managers last year and found that most U.S. managers underperformed their benchmarks. S&P DJI concluded that 2019 was the fourth-worst year for actively managed U.S. equity funds over the past 19 years.

While S&P DJI said it is too soon to know how active managers fared in the first quarter of 2020, the index provider noted that actively managed funds shined during the last downturn, with 59.3 percent of active U.S. equity funds beating the index in 2009, when the stock market bottomed.

“Current market dynamics such as high levels of dispersion suggest that we’re in precisely the type of environment where skilled active managers have the most potential to add value,” the index provider said.

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