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Clients Ignore Active Manager Outperformance

January 15, 2016

Clients have lost faith en masse in asset managers, continuing the migration to market-cloning funds — despite the passive investments performing worse in 2015, the Wall Street Journal writes.

Last year advisors saw $413.8 billion flow into index funds while investors pulled $207.3 billion from U.S. mutual funds and around $169 billion from funds focused on individual stocks, according to Morningstar data cited by the Journal.

This loss of faith in asset managers resulted in the largest-ever net outflow from actively managed U.S. equity funds and the first outflow since the financial crisis, according to Morningstar.

The exodus happened in a year when actively managed open-end funds on Morningstar’s radar lost 2.2% on average, compared to a 2.7% loss in passive funds, the Journal writes.

What’s more, almost half (46.7%) of actively managed funds outperformed their benchmarks, compared to 26.9% that did in 2014, according to the publication.

Money managers with actively managed funds, including AllianceBernstein, MFS Investment Management and Franklin Resources, are trying to claw back market share with reports highlighting to advisors the long-term advantages of active stock and bond selection, the Journal writes.

Some funds, such as T. Rowe Price Global Technology Fund, returned 21.1% in 2015, and other actively managed funds did particularly well when they were able to invest in international stocks or use hedge-fund-like strategies, according to Morningstar data cited by the publication.

However, the “more-standard” passive funds did do better last year. The average actively managed taxable-bond fund lost 1.8% compared to an average loss of 0.2% for passive bond funds, and an average actively managed stock fund lost 2.9%, compared to a 2.3% loss for a passive equities fund.

Index funds drew their second-biggest inflows after 2014, adding significant capital to companies offering index funds, such as Vanguard, which took in more than half of the inflows last year, with an industry record $236 billion, the Journal writes.

By Alex Padalka
  • To read the Wall Street Journal article cited in this story, click here.