Active fund management has been under fire over the years and more recently at the end of 2016 for failing to deliver returns that justify the fees charged to investors.
Costs paid to active fund managers, which charge higher fees due to the operational costs of this management, have been under increasing pressure as these firms compete with low-cost passive managers for market share.
Since 2005, passive funds have experienced nearly fivefold growth and now represent around 23% of the assets under management in the UK, according to the Investment Association Annual Survey published in September last year. A study into the asset management industry published by the UK regulator, the Financial Conduct Authority, evaluated that £109bn of investor money was held in active funds that closely mirror the performance of the market, dubbed in the industry as ‘closet trackers’. The same research calculated that the annual average disclosed fee for actively managed equity funds available to UK investors is 0.90% of the assets under management (AUM) and the average passive fee is 0.15%.
Market efficiency theory stipulates that it is impossible to ‘beat the market’ because share prices always incorporate and reflect all relevant information. This is one theory behind why there is such variable performance across the numerous active funds available to investors, as fund managers initiate their best investment ideas. Some of which come off, while others don’t. Active fund managers are also likely to perform better in the market environment that supports their particular investment style and underperform in others.
Data from Morningstar was used to compile the following research on active share, which was published in the Telegraph, to highlight the most and least active funds. Active share is one way to determine how far a fund manager is deviating from the benchmark.
Please click here to read the Telegraph article.
