Active funds have had a challenging first half in 2016, after rallies in out-of-favour areas such as mining and oil stocks caught them unawares and caused them to lag the market.
With this in mind, we looked across the main Investment Association equity sectors to see which passive funds were outperforming their active rivals and sitting in the top quartiles of their peer group.
The results suggest that 2016, at least up to now, will have been a relatively good year to have taken passive exposure to equities.
The UK equity market is one where trackers have had a strong showing this year, after the rebound in commodity prices and a Brexit result in the country’s referendum on the European Union wrong-footed many active managers.
FE Analytics shows that the average fund in the IA UK All Companies sector has lagged both the FTSE 100 and the FTSE All Share since the start of the year after making just 2.55 per cent. In contrast, the FTSE 100 has made a double-digit gain.
Performance of sector vs indices over 2016
Source: FE Analytics
Our data shows that 27 of the 37 IA UK All Companies funds that are listed as having an index-tracking approach sit in the sector’s top quartile over the year to date while another seven are in the second quartile. The remaining three – which track mid-cap or ethical indices – are in the bottom quartile after posting losses.
Source: FE Analytics
Given the outperformance of the international-facing companies in the FTSE 100, there is little surprise that trackers mirroring this part of the market are some of the best performers. Those concentrating on stocks further down the market-cap spectrum have fared less well and lagged many active managers, however.
The passive fund topping the IA UK All Companies sector’s performance table is BlackRock 100 UK Equity Tracker as its 10.21 per cent total return ranks it 17th overall in the 265-strong peer group. It’s also just 13 basis points behind the FTSE 100.
Performance of fund vs sector and index over 2016 to date
Source: FE Analytics
HSBC FTSE 100 Index, L&G UK 100 Index Trust, Santander Stockmarket 100 Tracker Growth and Liontrust FTSE 100 Tracker are all within the 25 highest returning funds in the sector over the year to date with total returns hovering around the 10 per cent mark.
Within the IA UK Equity Income sector, the only tracker is the Vanguard FTSE UK Equity Income Index fund and this finds itself in the top quartile after making 5.35 per cent, ranking it 18th out of 80 funds. However, this outperformance comes after three straight calendar years of fourth-quartile returns.
Over in the IA Global sector there are nine trackers (out of 16) that have made first quartile year-to-date returns and another six in the second quartile.
Source: FE Analytics
UBS FTSE RAFI Developed 1000, the fund topping the list, has been the ninth best performer in the 257-strong IA Global sector, which has made an average return of 13.47 per cent. The fund, which only launched in June 2015, tracks the MSCI World Minimum Volatility index.
There’s a small-cap tracker in second place on the list but the third place is more of a ‘conventional’ global equities tracker.
As FE Trustnet has noted on a number of occasions, the global equity space has repeatedly shown itself to be a difficult environment for active managers to outperform in. Some 85 per cent of its members are lagging the MSCI World over 2016 while 88 per cent are behind it on a five-year view.
Vanguard FTSE Developed World ex UK Equity Index’s outperformance of its average peer highlights this fact more starkly. Not only is this tracker almost 4.5 percentage points ahead of its average peer over the year to date, it also sits in the top quartile over one, three and five years.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Within the IA Asia Pacific Excluding Japan sector, five of the seven index trackers are in the first or second quartiles while when it comes to IA Europe Excluding UK, all 10 trackers are in the top two quartiles over 2016 – as are all 10 of the trackers in the IA North America sector.
