Most actively managed U.S. equity mutual funds readily beat their indexes last year, an unusual outcome in a period marked by high anxiety and skyrocketing stock and bond prices in the wake of the 2008 market crash.
The recent Standard & Poor’s Indices Versus Active Funds Scorecard was a sharp departure from the historical trend. For most of the last decade, active management has substantially underperformed in most stock and bond asset classes, with only a handful of managers beating their benchmark. The last year active management fared better was in 2000, when just 40.5 percent of managers trailed their indexes, versus 2009’s 41.67 percent.
Small-cap managers fared the best of all equity categories last year: Less than a third of small-cap managers were beaten by their index, compared with 63.21 percent and 66.60 percent in the three- and five-year periods, respectively. Most active bond managers also handily beat their indexes.
The notable fixed-income exception last year was in high-yield debt, with the Barclays High Yield Index crushing active managers and retaining the upper hand over both the three- and five-year periods. Indeed, at the five-year cutoff, most bond indexes outperformed active managers.
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