The British investment platform, AJ Bell, with more than 382 thousand clients and total assets of 72.8 trillion pounds in its latest Active V Passive 2021 report, comments that this year has been nebulous for active managers, as the Passive funds have had better returns on average.
In the most popular categories of 2021 such as global equities and North America, the active funds with the best returns were few. So in the US funds. almost 1 in 5 active funds outperformed its passive alternative in 2021. And the situation does not improve if you take a longer period (ten years), which may be due to the fact that there is a structural reason why relatively few active funds outperform their passive peers. As is known, the US stock market is flooded with analysts who follow companies in that region and therefore it is more difficult to find a market opportunity.
In addition, the US stock market has grown so much that currently represents about two-thirds of the world index Furthermore, American technology companies are the most representative in global funds, due to their relevance.
As can be seen in the following table, in a period of 5 years, over 50% of Emerging Markets, Japan and UK funds beat their passive peers, the rest are below 50%. On the other hand, in a period of 10 years, more than two thirds of active funds (except as said Global and USA) outperform profitability to their passive peers. It is also observed that only 34% of active funds exceed their liabilities so far in 2021.
For investors who prefer passive funds, fund selection consists of choosing those that replicate market indices most effectively and at the lowest possible price. Although we consider that passive funds and ETFs are another tool for investors, they are not at odds with each other, but rather you have to know how to combine strategies well to have better results. Use passive funds in those markets or sectors where it is difficult to beat the indices and use active funds for, for example, those sectors where the analyst’s work takes center stage, such as small caps.