Nearly half (44%) of active equity funds outperformed a tracker in the first half of 2023, AJ Bell has found.
In its newly published Manager versus Machine report for H1, the number of active equity funds which outperformed a tracker increased to 44% from 27% in 2022. Over the last 10 years, only 28% of active managers have been able to beat the passive machines.
However, only a third of global active funds have managed to beat a passive machine in H1 2023, a stat that AJ Bell describes as not a “great sales pitch for active funds”. Furthermore, the longer-term figures showing that only 22% of active funds in the sector were outperforming over 10 years.
Despite the lower figures, the firm has found that over three quarters of global emerging markets managers have been able to beat the passive machine in 2023.
After 10 years, a £10,000 investment in one of the most expensive UK tracker funds is today worth £1,660 less than the same investment in the cheapest tracker.
Head of investment analysis at AJ Bell, Laith Khalaf, said: “Active equity managers fought back in the first half of this year after a dismal 2022 when just over a quarter managed to scrape past a tracker fund. To be honest, things couldn’t have got much worse without testing the laws of statistics.
“The active versus passive battle is increasingly being won by tracker funds, if the investment industry’s fund flows are anything to go by. Our longer-term analysis shines a light on one of the factors driving this trend: only 38% of active equity funds have outperformed a passive comparator over the last 10 years, which isn’t exactly a great sales pitch for active funds.
“A lot of this can be put down to a poor showing from global funds, where just over one in five have beaten the passive machines over the last decade. However, there are long-running market trends which provide some mitigation for active managers, in particular the dominance of US tech stocks.”
Khalaf added: “Active fund investors will typically hope to improve their chances of outperformance by selecting fund managers with established and successful track records, which is no guarantee of success, but significantly better than picking funds with a blindfold and a pin. Passive fund investors also need to be on their toes as some funds charge egregiously high fees, which can be easily avoided by switching to a cheaper alternative.”
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