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The second quarter was not only an exceptionally strong one for U.S. stocks but also an especially strong quarter for investors of actively managed equity funds.

According to a new Dalbar study that focuses on investor behavior rather than market or fund returns, the average active equity fund investor outperformed the average equity index fund investor by 223 basis points in the second quarter — gaining 20.97% versus 18.74%. 

The S&P 500 ended the second quarter with a 20% gain, its biggest quarterly percentage jump since the fourth quarter of 1998.

The average active equity fund investor also withdrew less on a monthly basis in the second quarter than the average equity index fund investor. In addition, active equity funds in April experienced greater net inflows versus outflows as a percentage of total assets than passive funds for the first time since April 2012.

A buy-and-hold strategy proved to be the best approach for equity investors during the first half. According to the Dalbar study, a hypothetical $100,000 equity portfolio lost $3,081 during the first half of the year, compared to a $5,028 loss for a comparable portfolio owned by the average investor. 

Also during the first half, the average equity sector fund investor withdrew money from almost all sector funds except precious metals, which saw significant net inflows, and technology funds, which experienced very slight net inflows, according to Dalbar.

In a separate report, Morningstar’s director of global ETF research, Ben Johnson, found that slightly more than half of actively managed funds outperformed their average index peers during the first half of 2020, which is a higher percentage than many previous comparable periods. Over the 10 years ended June 30, 2020, however, only 24% of all active funds outperformed their average passive rivals, according to Johnson. 

In general, passive U.S. equity index funds outperformed their active counterparts during the 10-year period but the reverse was true for active bond funds and foreign stock funds, according to Morningstar.

Johnson cautions, “Investors should understand the chances of finding a successful active fund as well as the size of the prospective payout for picking a winner and penalty for landing on a loser.” 

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