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How active managers get an edge

Fund managers are turning to new ways to get ahead of their peers
How active managers get an edge

Last year was a good year for global markets, but not so good for the relative performance of active funds. Asset manager Janus Henderson was also fined £1.9m for overcharging investors in active funds that did not perform very differently to passive funds – so-called ‘closet trackers’. Passive index-tracking funds domiciled in the UK, meanwhile, attracted net inflows of £19bn, while active funds saw outflows of £36bn – their highest level on record, according to data provider Morningstar

But around 40 per cent of active funds domiciled in the UK outperformed their benchmarks in the 2019 calendar year. And over longer periods, certain active funds have outperformed relevant benchmarks by quite some margin. For example, over five years to the end of 2019, Fundsmith Equity (GB00B41YBW71) made a cumulative total return of 133 per cent, against 79 per cent for MSCI World index and the Investment Association Global fund sector average of 66 per cent.

Funds operate in a competitive and overcrowded market, so not surprisingly their managers are continually trying to find ways to set themselves apart from their peers.

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