Active Funds Winning in 2015 So Far

As I mentioned a few weeks back, the three critical conditions to see a large number of actively managed stock mutual funds outperform are all present:

a) cash is not a huge drag
b) small/mid caps competitive with large caps
c) international stocks holding their own

Dipping into smaller stocks, foreign stocks that exist outside the index and husbanding cash are three of the primary sources of active managers’ alpha and explain a lot of the returns during periods of time where many managers outperform.

Indeed, all three of these conditions are now in effect and so we see a big rebound in the amount of active managers who are besting their benchmarks so far in 2015.

Credit Suisse’s US equity strategist, Lori Calvasina, has the data in the charts below – broken down by performance through Q1 and then the month of April, where there is some continuation…

Track Records Relative to Benchmark
2015 has been an especially strong year for value funds.

* In most peer groups, more than 50% of funds have beaten their benchmarks year to date, based on data from Morningstar.
*April was a strong month for small and SMID funds, but a tough month for most large cap and all cap funds; within large and all cap, only value peer groups reached the 50% outperformance threshold.

Screen Shot 2015-05-13 at 10.26.16 AM

Josh here – this is good news for the industry and for active fund investors, if they’ve won the coin toss and have wound up in the half of funds beating the benchmark this year. CS points out that the value funds are really generating the most alpha this year, which is consistent with a choppy market that doesn’t make much headway. have a gander at that Russell 3000 Value peer group, wherein almost every fund beat the index in Q1!

But this is only a microscopic timeframe, of course, in the grand scheme of a long-term investment portfolio.

The bigger problems with active – the fact that outperformance is mean-reverting or non-persistent and that success breeds underperformance because of scale is the enemy of alpha – will not be addressed here.


Peering Into Portfolios
Credit Suisse – May 12th 2015

Read Also:

All 3 Preconditions for Active Outperformance are Present (TRB)


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