Actively Managed Funds Disappoint in 2017 With Some Bright Spots

(Related: Investors Have ‘Given Up’ on Active US Stock Funds: Morningstar)

The performance of actively managed bond funds in 2017 was an even more dramatic story than that of actively managed stock funds.

While more than 96% of long-term government and investment grade corporate bond funds bested their benchmark indexes for the 12 months ended June 30, only 11% of long-term government bonds and 4% of long-term investment grade corporates did so for the 12 months ended December 31, 2017.

That big reversal is not unusual when comparing one-year numbers through the first half to those through the second half, says Poirier, adding that performance of actively managed bond funds is more stable over longer periods of time. But it is also more disappointing.

Less than 6% of long-term government and investment grade corporate bond funds outperformed their indexes over the three years, five years, 10 years and 15 years ended December 31, 2017. Actively managed high yield bond funds fared only slightly better. Less than 10% of those funds outperformed their benchmarks during the same four time periods.

Stocks funds generally performed better than bond funds in relation to their benchmarks. The percentage of equity funds outperforming over three, five, 10 and 15 years ranges from 10% to 25%, depending on the category.

Despite all the findings of the SPIVA report,  investors should not necessarily avoid actively managed funds. They should instead be asking if their funds are average or exceptional, providing the strongest outcomes and keeping them on track to meet their individual goals,  says Steve Deschenes, product management and analytics director at Capital Group, the biggest active asset manager in the U.S. and parent company of American Funds.

According to Morningstar, 10 of 11 American Funds equity offerings beat their benchmarks on  an absolute and risk-adjusted basis over the past 20 years through February 2018. “Investors in the American Funds lineup have been rewarded handsomely the past two decades,”  writes senior analyst Alec Lucas in a recent Morningstar report.

In addition to tracking the performance of actively managed funds, the SPIVA report found that mutual funds overall are disappearing “at a meaningful rate.”  Over the 15 years ended December 31, 2017, 58% of domestic stock funds, 55% of international equity funds and 48% of fixed income funds were merged or liquidated.