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Active better than passive in 2020

28 January 2021

Active managers outperformed market indices in seven of the ten major equity sectors during 2020, turning the tide on passive investing as the favoured strategy, according to Quilter.

Data published by the investment firm showed that the average UK all companies fund was 3.6 % ahead of the index, while the UK Smaller companies funds outperformed the Numis UK smaller companies index by 11%.

The same trend was found in overseas funds, with funds invested in continental Europe, Japan and emerging market equities up 1.6% on broad market indices.

Quilter said the upturn in performance was as a result of stronger market performance following the drastic falls seen in February and March amid the emergence of Covid-19. Announcements of successful vaccines and economic stimulus in the latter half of the year also helped to boost fund performance and drive markets to all-time highs, the firm said.

Nick Wood, fund expert, Quilter, said: “With the data in for year end, it seems active management has done a reasonable job in 2020 particularly given the extraordinary circumstances we faced during the pandemic. With the sharp recovery in share prices, and a handful of tech stocks benefitting active managers, it is certainly a change in fortunes given recent history has tended to favour passive investing as a strategy.

“However, one year of good performance has clearly not changed investors’ minds as active management continues to see outflows in favour of passive products. We expect this trend to continue somewhat as the focus on cost intensifies but going forward the environment looks positive for active managers in 2021 and potentially into the longer-term.”

Wood said that while stocks such as Amazon, Facebook and Microsoft had helped drive stock markets to fresh highs, their shares prices are unlikely to repeat the same performance in 2021. With the addition of a period of outperformance by small and mid-cap companies and the success of Asian countries following the pandemic – both areas where active managers traditionally outperform – Wood expects to see a period of strong performance compared to passive investments which he says  “arguably follow yesterday’s trends.”

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