Morningstar - Q2 2022 - 19

Dispatches
Global Briefs
TRENDS
Actively Managed Funds Less Likely to Succeed in the Long Run
The Morningstar Active/Passive Barometer
measures the performance of active funds against
passive peers in 20 Morningstar Categories
using metrics that help investors calibrate the
odds of succeeding with active funds in a
particular category. One of these is success rate,
or the percentage of active funds in a category
that both survived and outperformed their
average passive peer.
Active fixed-income managers did relatively well
by losing less in 2021: Most active bond funds took
less interest-rate risk than their typical passive
peer, which was to their benefit as interest rates
rose. The success rate across the three fixedincome
categories in this analysis was 70%,
up from 43% in 2020.
Overall, however, active funds had a success
rate of only 45% in 2021, down from 49%
in 2020. U.S. stock-pickers' one-year success
rate was 41% in 2021, and the combined
one-year success rate for active foreign-stock
funds was 37%.
Category
U.S. Large Blend
U.S. Mid Blend
U.S. Small Blend
Foreign Large Blend
Foreign Small/Mid Blend
Diversified Emerging Markets
U.S. Real Estate
Intermediate Core Bond
Corporate Bond
High-Yield Bond
0%
*Funds with fees in lowest and highest quintiles, respectively.
Source: Morningstar. Data as of 12/31/2021.
25
50
75
100
Active Funds' Success Rate
10-Year
1-Year
In general, actively managed funds have failed to
survive and beat their average passive peer,
especially over longer time horizons. Only 26% of
all active funds topped the average of their
passive rivals over the 10-year period ended Dec.
31, 2021. Long-term success rates were generally
higher among foreign-stock, real estate, and bond
funds and lowest among U.S. large-cap funds.
Ben Johnson, CFA, is director of global ETF research
at Morningstar. He is a member of the editorial board of
Morningstar magazine.
Lowest-Cost
Funds 10-Year
19.2
29.2
31.4
48.6
75.0
69.0
50.0
54.8
33.3
76.9
*
Highest-Cost
Funds 10-Year
1.3
4.0
13.9
18.4
40.0
53.3
30.8
20.6
25.0
36.7
*
New Study Analyzes
Fund Lineup Turnover
GLOBAL
Developing new investment funds can be
tricky. Investment-driven firms often let research
drive the process, but their new strategy
ideas don't always resonate with investors.
Distribution powerhouses follow fund
flows but sometimes rush to market to catch
demand without the rigor or investment
acumen to run what they're selling. Client-focused
firms try to respond to customer needs and
wants, but designing products quickly to
satisfy consumer demand, which can be fickle,
may not serve their long-term interests.
Asset managers must evolve and innovate to
stay competitive and relevant, but there's risk in
moving too quickly. When investment firms
liquidate strategies, they force investors to seek
suitable alternatives in which to invest their
morningstar.com/products/magazine
19
https://www.morningstar.com/authors/680/ben-johnson http://www.morningstar.com/products/magazine
Morningstar - Q2 2022

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