More Evidence Active Management Won't Outperform in Volatile Markets

Don’t expect many actively managed mutual funds to outperform index funds in volatile markets.

During a tumultuous October when the S&P 500 lost almost 7%, the average actively managed large-cap funds lost even more, 7.5%, according to analysis by Bank of America Merrill Lynch. It was the worst monthly performance for actively managed large-cap funds since September 2011.

Actively managed large-cap growth funds performed worst of all. The average actively managed large-cap growth fund lost 9.3% in October and only 14% of those funds bested their benchmark. In contrast, the average actively managed large-cap value fund fell 5.8%, and 30% of them beat their benchmark.

Large-cap core funds performed best of all, but they only matched the performance of their benchmark, losing 6.8%. Fifty-six percent beat their benchmark, the second straight month more than half of them did.

Large-cap managers underperformed even after rotating out of cyclical sectors into defensive sectors at a record pace in September, according to Merrill Lynch analysts.