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Analysis by Willis Owen reveals actively-managed funds significantly outperform passives

Posted by Adrian Lowcock in Press releases category on 21 Mar 19

  • Analysis shows only two index funds rank in top 50 performers over three and five years
Actively-managed funds dominate virtually all the best-performing UK retail OEIC and unit trust funds over the last three and five years, according to new analysis1 by Willis Owen, the online investment platform.

The analysis1 shows that passive funds account for just two of the top 50 performers over both three and five years. Over three years, the Scottish Widows Fundamental Index Emerging Markets Equity Fund ranked 23rd and the L&G Global Technology Index Trust ranked 26th with returns of 78.24% and 72.01% respectively, under-performing the overall average return of 78.67%. 

Over five years, the L&G Global Technology Index Trust ranked 11th and the Vanguard US Opportunities Fund ranked 20th with returns of 134.03% and 123.50% respectively, comparing more favourably with the overall average return of 119.39%. However, the top 10 actively managed funds delivered significantly superior average performances of 100.00% and 143.89% over three and five years.

Adrian Lowcock, Head of Personal Investing, Willis Owen, commented:

“Passives do have their place in portfolios but investors are generally better off in good active funds. Passives will buy the good, the bad and the ugly companies, whereas active managers can identify opportunities that are missed and undervalued by the market and which can deliver strategies that match investors’ objectives more closely. Ultimately though, it is up to investors to decide which funds – passive or active - suit them.

The Best-Performing Funds over Three and Five Years

Three years, including performance1 Five years, including performance1
BNY Mellon Brazil Equity (138.68%) Fidelity Global Technology (161.74%)
HSBC GIF Brazil Equity (114.03%) Polar Capital Biotechnology (153.73%)
Pictet Russian Equities (99.04%) Polar Capital Global Technology (151.41%)
JPM Brazil Equity (97.48%) AXA Framlington Global Technology (145.71%)
BlackRock GF World Mining (95.67%) GS India Equity Portfolio (142.43%)
Polar Capital Global Technology (94.51%) Stewart Investors Indian Subcontinent (140.71%)
Neptune Russia & Greater Russia (93.15%) Baillie Gifford American (138.09%)
HSBC GIF Russia Equity (91.36%) Morgan Stanley Global Opportunities (135.88%)
HSBC GIF BRIC Markets Equity (88.39%) Legg Mason IF Japan Equity (135.16%)
Neptune Global Technology (87.64%) Matthews India (134.03%)
The analysis1 also shows that over three years, the top 10 performers are dominated by funds investing in Brazil, Russia, commodities, technology and emerging markets (see above table). Over five years, the top 10 funds invested in technology, India, global equities and Japan.

Adrian Lowcock added:

“The top-performing funds were invested in high-growth or recovery parts of the market, whereas passives will give exposure to the whole market. 

“Generally, passives will perform in the latter stages of bull runs when active managers are struggling because the managers are more wary and are selling stocks they regard as over-priced. Passives are also useful if you wish to buy burned out markets and want exposure to the rebound quickly and cheaply. 

“Passives compare badly when markets are rotating between styles, for example growth to value, because the market on the whole doesn’t move as much whilst the prices of individual companies could change significantly.   Active managers are also better at picking small caps that are under-researched and equity income stocks because they can avoid dividend traps.

“Identifying the winning stock-pickers is also difficult, of course. To do this, investors should look for managers who have proven their abilities to add value and who have strong robust investment philosophies and repeatable processes. Helping investors identify such fund managers is a key part of the Willis Owen proposition.”

1Source: FE Trustnet. Based on analysis of 3,401 UK retail funds. Performance measured on total return, net income re-invested over three and five years to 31/12/2018