Active fund management unsafe in bear market: Morningstar
Research from Morningstar has shown that the assumption that active fund managers will perform better in a depressed market may be under threat, with results from a survey of 47 fund managers revealing less than half of active fund managers outperformed the index in 2008.
Out of 29 active fund managers included in the survey, only 13 achieved returns above the benchmark in 2008. The research also confirmed that only a minority of active fund managers have been able to outperform the market in the long term. Less than one-third of all active fund managers outperformed over a three, five and seven-year timeframe up to March 2009.
“The argument made by the proponents of active management — that bear markets strongly favour active managers since indexes are sure to follow as markets head south — simply did not hold up in 2008,” the report said.
On average, active management did more harm than good, the report said.
The opportunity for active investment management has improved significantly, but there are dangers to the strategy as well, the report said.
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