Active fund managers disappoint again

Active fund managers disappoint again

A report found that beating the market was once again a huge challenge for fund managers in 2023. According to the “S&P Indices Versus Active Funds (SPIVA) Europe Scorecard” study, 87 percent of actively managed equity funds based in Germany performed worse than the S&P Germany BMI benchmark index. Over the last ten years, this rate was as high as 85 percent.

The study also showed that the majority of funds offered in Europe have underperformed their respective benchmark indices across all equity and bond categories over the past decade. Despite some successful fund managers who were able to beat their benchmark index in the short term, Tim Edwards, head of index investment strategy at S&P Dow Jones Indices, emphasized that this remains the exception in the long term: “You might as well flip a coin.” Actively managed global equity funds performed particularly poorly in Italy, where 98 percent were unable to beat the benchmark index.

According to Edwards, a main reason for the fund managers' poor performance is increasing market concentration. The heavyweights in S&P BMI Germany make up a significant portion of the index weight and contribute significantly to index returns, making it difficult for active fund managers to outperform them. Despite favorable market conditions and broad gains in stocks and bonds, the majority of funds in the Eurozone and across Europe failed to deliver better results.

The SPIVA Europe study, which has been comparing fund managers' performance against their benchmark indices for a decade, shows that almost half of actively managed equity funds in Europe have merged or folded in the last decade, largely due to poor performance relative to the index. Despite isolated successes, it remains a major challenge for fund managers to beat the market in the long term.