Can active ever beat passive again?

During the five years of quantitative easing the Federal Reserve (Fed) achieved its goal of creating a wealth effect as interest rates plummeted to multi-decade lows while equity and bond markets appreciated considerably. However, this caused equities to move increasingly in tandem, making effective stock-picking more challenging.

Now, with the Fed signalling potential interest-rate hikes in late 2015/early 2016 the environment is ripe for active managers to show their worth once more. In fact, 65% of active US large-cap funds outperformed their benchmarks during the first quarter of 2015, which may represent a meaningful inflection point for performance trends.

As stock correlations descend, performance dispersion is expected to widen across sectors highlighting the level of inefficiency across companies which can be exploited through selecting winners and avoiding losers and give a greater alpha opportunity for active managers.

George Saffaye – The Boston Company Asset Management, a BNY Mellon company

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2 Comments on “Can active ever beat passive again?”

  1. […] post Can active ever beat passive again? appeared first on Market Eye | UK | BNY Mellon Investment […]

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  2. Paul Stephany

    Hi

    I am a UK fund manager at Newton in London and intrigued that UK active managers (including those at Newton) have indeed achieved significant outperformance of their benchmark in this period. The average return of the UK active sector is 4%/3%/2% per annum ahead of the index over 1/3/5 years, net of fees. I would think that a material part of this outperformance has come from underweighting the resources sectors in recent years, with presumably overseas investors now holding these shares.. Around half the UK market is owned by overseas investors.

    Thank you for raising the issue of active/passive which is clearly a critical one for our industry but one that can differ across geographies.

    Paul Stephany

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