Where is it worth paying for a human stock picker?
Fund managers appear to beat some markets more often. James Connington looks at when they are worth paying for
Low-cost, computer-driven funds that track the market are soaring in popularity, while the higher fees and questionable performance of human managers come under greater scrutiny. How difficult is it for an “active” fund manager to beat the market?
Data compiled by Telegraph Money, looking at a range of countries and markets over the past five years, shows it is more of a gamble in some sectors than others.
In general, the more developed and well researched a market, the more active managers struggle to outperform.
Only indexes that are available to buy via a tracker or exchange traded fund have been used for comparison.
America is the best researched market, and just 20 out of 87 active US fund managers beat the main index, the S&P 500 – over five years.
Only 7pc of funds beat the index by more than 10 percentage points.
Adrian Lowcock, investment director at Architas, said: “Everyone knows the same thing about American companies at the same time, making it hard to gain an edge.” The majority of global managers fail to beat the market.
Markets such as America – which are hard to outperform – make up a large proportion of available stocks for these managers. Asian markets could provide active managers with room to outperform. However, big economic decisions made by governments hold significant influence over Asian markets, which only some active strategies will benefit from at any given time.
Mr Lowcock added that many managers had been “caught out” in the past, and hadn’t always paid enough attention to individual companies.
In Japan, government policies, central bank decisions and exchange rate movements are often the main drivers of performance.
Only 37pc of funds have returned more than 10 percentage points more than the index over five years.
There is one anomaly – top performing Legg Mason IF Japan has returned 275pc over five years, more than double its nearest rival.
The European market is less developed and understood than America, and has a wide range of countries to choose from.
Managers should be able to take advantage of this to beat the index – FTSE World Europe excluding UK – yet just over half do.
The European market faces enormous political risk, and as we saw in 2016 it is difficult to predict the outcomes. The FTSE All Share covers 98pc of the UK market and includes FTSE 100 giants alongside smaller companies. The UK market is highly developed so it is surprising that 148 funds – or 64pc – beat the index over five years. However, the region has a number of funds that Where do managers beat the index? Sector
UK All Companies UK Smaller Companies America Europe Global Japan Asia Emerging Markets
Five-year index return