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Can Active Managers Beat Their Benchmark? Yes.

Investment Views, Investments

Posted by Scott Pountney

May 6, 2015 3:49:24 PM

Director, Retail Investment Products
Empire Life Investments Inc.
Directeur, Produits de placement, Marchés individuels
Placements Empire Vie

In the ongoing debate between active vs. passive investing, Invesco has released a whitepaper examining the historical outperformance of active management.

The study examines 3,000 equity mutual funds over the past 20 years – covering five distinct market cycles, and was done through the “lens” of active share. Active share measures the difference between a fund’s holdings and the holdings of its benchmark. The authors’ separated “high” active share managers from “low” active share managers (which we often call closet indexers).

Key Findings:

  • 61%* of “high” active share fund assets beat their benchmarks across all market cycles
  • 64%* delivered better downside protection
  • 61%* had better risk-adjusted returns (as measured by Sharpe ratio)
  • Outperformance of active managers also existed among US large cap stocks (often deemed highly-efficient and believed best accessed through index/etf products)
  • The above findings were all AFTER FEES

Now, not all active managers are created equal, so the key is to identify and partner with an investment manager that possesses the skill, talent, experience, and a proven investment philosophy to turn that “active share” into outperformance.

*asset-weighted basis