Macroscope | Fund managers had a tough year beating the market. This year is unlikely to be easier
- Investors are fleeing active funds and star managers like Britain’s Neil Woodford have fallen from grace. It’s worth nothing that historically, it has always been difficult for a stock-picker to beat the market
While the numbers have yet to be finalised, 2019 seems to have been a particularly bleak year for active fund managers, with estimates by Bank of America that fewer than a third were able to beat their benchmarks. Even clearer is that the longer the time frame, the more prone fund managers are to underperforming.
In the last 15 years, for example, 92 per cent of large-cap funds were outperformed by the S&P 500. Investors have voted with their feet: in the year up to June 2019, money was pulled out of active mutual funds at the highest rate in three years, much of it ending up in low-cost passive index trackers.
Defenders of active management were often able to answer critics by highlighting the performance of certain star managers, fabled for their uncanny ability to consistently outperform the markets. In Britain, that star power was exemplified by Neil Woodford, as close to an emperor of the investing universe as you were likely to find.
He was famous for turning an initial investment of £10,000 (US$13,000) into £250,000 (US$326,000) over more than 25 years at the investment firm Invesco Perpetual. But a closer look uncovered that this emperor was not wearing any clothes. Woodford’s flagship fund, launched in 2014, was eventually suspended in 2019 following massive losses and investor withdrawals. In the meantime, Woodford pocketed £9 million (US$11.7 million) in dividends for that year.
