COVER STORY
Broken parachute
As mentioned , one of the arguments often given in favour of active management is that it can protect against the downside , helping sidestep the crash when momentum-driven markets run out of steam . However , so far this year , the IA Global sector ’ s losses of 8 % are almost twice those of the MSCI World index . And 2022 is no outlier – data from FE Analytics shows that in the three years in which the market has finished in negative territory since the start of 2008 , the IA Global sector has fallen significantly further than the MSCI World index .
Performance of sector vs index in negative years
Name 2022 (%) 2018 (%) 2011 (%) 2008 (%)
IA Global -8.0 -5.7 -9.3 -24.3
MSCI World -4.3 -3.0 -4.8 -17.9
Source : FE Analytics
54 actively managed categories it monitors , just five have beaten the market over 10 years . Most beat the market less than 25 % of the time . The third source is an
ongoing study by David Blake , Tristan Caulfield , Christos Ioannidis and Ian Tonks . This looked at 516 active equity funds in the UK over a 17-year period . According to their analysis , around 99 % of all equity fund managers were unable to deliver outperformance from stock selection or market timing . They added : “ Just 1 % of fund managers actually prove to be ‘ stars ’, able to generate superior performance in excess of operating and trading costs . However , they extract all of this for themselves via fees .” In other words , even if you were skilful or lucky enough to identify a “ star ” in advance , you still would have been better off in an index fund once costs were factored in .
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