At the end of 2015, more than 84% of U.S. active funds underperformed the S&P 500 over the year. From a long-term view, over the past ten years, more than 98% of active funds failed to beat their benchmarks. Diving through the data, active funds failed to outperform the market over almost all time frames, the report of S&P Dow Jones Indices shows.
Percentage of actively managed Funds that underperform benchmarks (over one-year period)
Source: S&P Dow Jones IndicesSavita Subramanian, strategist of the Bank of America Merrill Lynch, stated briefly that the active fund managers continued to be on the wrong side of the trade this year. Telecom, utilities and energy benefited from the rebound of oil prices, to which many funds did not attach enough importance. On the contrary, healthcare and consumer discretionary, two of the three worst-performing sectors, were overweight in active funds.
The fees are eating into the gains of funds. If the investor was lucky and chose a follow-the-benchmark active equity fund, the fees would take 1/3 of the income, not to mention that most active funds usually underperformed the benchmarks. Although the fees keep lowering these years, there are quite amazing when the gains of the market and funds are modest.
As a result, investors gradually shifted from active funds to passive funds, for reducing the cost and stopping the loss. According to data from Morningstar, active funds have lost $149.8bn in assets in the first half of 2016, while passive funds took in $286.1bn.