Investors buying UK funds would have been better off backing an active manager this year, but over the long term passives remain the safer choice, according to the S&P indices versus active (SPIVA) scorecard.
More than half (53%) of actively-managed large- and mid-cap UK equity funds outperformed during the first half of this year, SPIVA found.
This development will come as a welcome relief for active managers who failed to provide downside protection last year, falling even further than their benchmarks.
The vast majority of actively-managed UK equity funds (92%) and UK large-/mid-cap funds (97%) underperformed in 2022. It was their worst year since the SPIVA Europe Scorecard began in 2014.
This year, sector and stock selection proved more difficult at the smaller end of the capitalisation spectrum. Almost all (95%) of active UK small-cap managers underperformed during the first half of 2023, their highest underperformance rate in SPIVA’s history.
Ben Voros, director, index investment strategy at S&P Dow Jones Indices, said: “One thing that might have caught out active small-cap managers is the dramatic reversal of performance among the sectors of the S&P United Kingdom SmallCap index.”
Consumer discretionary and health care were the two best sectors during the first half of this year, roaring back after being the second and third worst performers in 2022. Last year, returns from the energy sector were 30% higher than the S&P United Kingdom SmallCap index and utilities outperformed by 26%; however this year they were the two biggest underperformers.
The long-term picture is different. Just over half (58%) of small-cap managers trailed the market over 10 years to 30 June 2023. Despite more underperforming than not, the small-cap space compared favourably with general active UK fund managers where 77% underperformed over 10 years; for UK large- and mid-caps specifically the figure rose to 83%.
In both global and US equities, 95% of active managers running sterling funds underperformed over 10 years. Europe was not much better: 89% of Europe ex-UK and 80% of pan-European equity funds denominated in sterling disappointed investors.
This year, too, it would have paid to go passive for sterling investors: 72% of actively-managed European equity funds, 71% of US equity managers and 77% of global equity strategies have underperformed.
“Conditions such as those experienced by markets in the first six months of 2023, replete with high sector dispersion amid a vigorous rally, would have rewarded managers who played offence. Such managers were, however, (very) few and far between,” Voros concluded.