Just a quarter of active funds beat passive as value rally subsided

Fewer than a quarter of active funds beat passive rivals as the value rally ran out of steam

  • Wealth manager Albemarle Street Partners has ranked funds by ‘active payback’
  • This calculates how much a fund has earned over and above a passive equivalent
  • Just 18 of 74 fund groups beat their comparative passive tracker in Q2 
  • Baillie Gifford American topped the list with active payback of £3 over 5 years

Less than a quarter of funds beat comparable trackers on returns between March and June, as the value rally started to run out of steam, according to new data.

The figures, provided by Albemarle Street Partners, showed just 18 of 74 fund groups beat their equivalent passive trackers in the three months to June. This compares to just over half of active funds in the same period last year.

Albemarle’s ‘active payback’ research calculates in pounds and pence how much a fund has earned after fees over and above an appropriate passive comparison. 

For example, an active payback of 5 pence would mean that for every pound invested in an active fund, investors would receive 5 pence more than investing in the equivalent tracker.

New figures show active managers underperformed in the second quarter as the value rally slowed down

Albemarle’s research takes into account the performance of all funds a FUND management group has on offer. This means the firm’s success is calculated on a weighted-average ‘Active Payback’ across all funds within the IA sectors with a minimum 5 year track record. To be considered for the research a firm must run funds in at least four sectors. 

The second quarter saw the value rally starting to slow down and markets return to rewarding quality and growth stocks.

‘[It] proved to be tougher for active managers given their general preference for the value style and their inherent tilt away from the largest stocks in the index. 

‘More broadly, this is related to the expectations of interest rate rises as the global economy recovers,’ Ryan Hughes, head of active portfolios at AJ Bell said. 

‘Late last year, the vaccine breakthrough resulted in expectations of a rapid economic recovery that would force central banks to raise interest rates faster than expected, but as we moved through 2021, this expectation faded with rate rises now expected to come more slowly.’

As growth stocks start to bounce back the leaders of the last decade have started to reassert their dominance although it is unlikely they will return to ‘relentless’ outperformance, Abemarle has predicted.

Fund manager Baillie Gifford topped the list with an active payback of £0.04 in the second quarter. 

The manager was helped by the performance of Baillie Gifford American which was tied in the top spot for active payback with Consistent Opportunities Unit Trust and Matthews Asia Small Companies.

Baillie Gifford American has recovered from a torrid March in which its portfolio – which includes Amazon, Tesla and Zoom – suffered from the tech sell-off. The fund also tops the active payback list over the past five years with an active payback of £3.

Charlie Parker, Albemarle’s managing director said: ‘Baillie Gifford American has undoubtedly benefitted from a strong tailwind as growth companies in the United States have outperformed everything else. 

‘The management team running this fund have shown courage in this context to retain allocations to the highest-growth areas which have been avoided by other active managers, such as Tesla.’

‘There is obviously real skill here rather than just a factor tailwind. Nonetheless, this does not make the fund invulnerable to sharp factor rotation as we saw last year.’

Fund 5yr performance Q2 performance 5yr Bench Q2 Bench FUND AP (5yr) FUND AP (Q2) 
Consistent Opportunities Unit Trust in GB57.83 16.96 39.68 5.11 £0.18 £0.12 
Baillie Gifford  American TR in GB**421.14 19.9 122.62 8.31 £2.99 £0.12 
Matthews Asia Small Companies in GB  116.79 15.92 88.25 4.39 £0.29 £0.12 
Liontrust UK Micro Cap in GB  179.2 15.45 54.72 4.06 £1.24 £0.11 
CFP Castlefield B.E.S.T Sustainable UK smaller Companies TR in GB  124.6 14.68 54.72 4.06 £0.70 £0.11 
Aviva Inv UK Smaller Companies in GB 129.88 14.53 54.72 4.06 £0.75 £0.10 
JOHCM Asia ex Japan Small and Mid Cap TR in GB 67.69 13.6 88.25 4.39 -£0.21 £0.09 
Templeton Emerging Markets Smaller Companies TR in GB 65.72 13.74 74.42 4.62 -£0.09 £0.09 
Schroder UK Dynamic Smaller Companies in GB 116.32 13.07 54.72 4.06 £0.62 £0.09 
Liontrust Global Smaller Companies in GB  170.29 16.03 97.21 7.32 £0.73 £0.09 
Source: FEAnalytics/ASP to 30/06/2021       

Elsewhere small cap funds have performed incredibly well, accounting for eight of the top 10 highest active paybacks.

‘Many small cap funds have moved to a quality focus in recent years and this has undoubtedly helped,’ Parker said. 

‘There is also a strong argument to be made that UK-focused firms have thrived in the first half of this year as the UK emerged from the pandemic and outperformed in its vaccine efforts.’

Fund 5yr performance  Q2 performance5yr bench Q2 bench FUND AP (5yr)   FUND AP (Q2)
Baillie Gifford American TR in GB**421.1419.9 122.62 8.31 £2.99 £0.12 
Morgan Stanley US Growth in GB**358.02 16.87 122.62 8.31 £2.35 £0.09 
Multipartner SICAV Baron Global Advantage Equity in GB  315.37 11.23 97.21 7.32 £2.18 £0.04 
GAM Star Disruptive Growth in GB  286.59 8.12 97.21 7.32 £1.89 £0.01 
Thesis Stonehage Fleming AIM TR in FB   225.1 9.15 54.72 4.06 £1.70£0.05 
MI Chelverton UK Equity Growth in GB  207.46 9.03 39.68 5.11 £1.68 £0.04 
Baillie Gifford Global Discovery TR in GB** 246.94 10.72 97.21 7.32 £1.50 £0.03 
Marlborough Nanco Cap Growth in FB  200.96 9.75 54.72 4.06 £1.46 £0.06 
Baillie Gifford Global Stewardship in GB  238.1 9.19 97.21 7.32 £1.41 £0.02 
Baillie Gifford Pacific TR in GB  214.93 9.24 88.25 4.39 £1.27 £0.05 
Source: FEAnalytics/ASP to 30/06/2021 

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