Research that reveals nine out of 10 active US equity managers fail to outperform benchmarks has been described as “embarrassing” for the industry by an S&P director.
A S&P Dow Jones Indices report found over a five-year period 91.9 per cent of US large-cap managers, 87.9 per cent of mid-cap managers, and 97.6 per cent of small-cap managers lagged their respective benchmarks.
Emerging market funds were the only sector that outperformed their benchmark more often than not over a one-year period, with 57.8 per cent achieving this.
However, over longer time horizons these too underperformed, with 67.6 per cent failing to match the benchmark over five-years.
International equity funds, benchmarked against the S&P 700, underperformed approximately 55 per cent over the one-year and three-year period and 60.5 per cent over a five-year period.
The report also found funds disappearing at a “meaningful rate”. Nearly 21 per cent of US equity funds and the same amount for global equity funds were merged or liquidated, followed by 14 per cent of fixed income funds.
Global research director at S&P Aye Soe said “there is nothing redeeming to say” about US stock pickers in the mutual fund industry, in comments made to the Financial Times.
“This was their chance to prove themselves and earn their paychecks, but across every category they underperformed. It is embarrassing.”
Soe said potential reasons why the US was a more difficult region in which to outperform included that the market was more global and had greater sector diversity.
Furthermore, he added financial data was reported much more widely there. “The US is probably more efficient and transparent in terms of financial information.”