The majority of active funds in areas such as UK smaller companies and tech stocks have surged past their benchmarks over the past five years, according to Trustnet research. 
Of the 1,060 active equity funds that we have benchmark performance for, 532 – or 50.2% - made a total return higher than their benchmark over the five years to the end of July.
Of course, there’s survivorship bias in there as we don’t have a five-year return for funds that are no longer around.
In terms of individual sectors, IA UK Smaller Companies sector is a standout performer. Some 85.4% of its members are ahead of their benchmark over the period under consideration, with the average relative return being 37.7 percentage points over the index.
Percentage of equity funds outperforming and underperforming benchmarks over 5yrs
Source: FinXL. Data as at 30 Jul 2021
The IA Japanese Smaller Companies and IA Technology & Telecommunications sectors also came out well in this research, with more than 75% of their active members being ahead of their benchmarks. The average relative return by active funds here has been outperformance of 9.7 and 23.6 percentage points, respectively.
IA Global, which is the largest sector in the Investment Association universe, has just 44.5% of its active funds beating the index over the past five years. The average fund has outperformed its benchmark by just 3.9 percentage points.
When it comes to the IA UK All Companies sector, which is another mainstay of portfolios, 63.5% of funds have made a higher total return than their benchmark.
The equity income sectors have come out worst in this research. Just 11.4% of IA Global Equity Income members have beat their benchmark, with the average fund lagging it by 29.1 percentage points.
The IA UK Equity Income sector comes off somewhat better with 36.2% beating the index. The average underperformance was 3.9 percentage points for this peer group.
Across the entire Investment Association universe, there are 29 funds that are 75 percentage points or more ahead of their benchmark over the five-year period. They can be seen in the table below.
Source: FinXL. Data as at 30 Jul 2021
Turning to the relative returns of individual funds and it’s a member of the IA North America sector at the top of the table.
The US is a notoriously difficult market for active managers to outperform in; just 37.6% of active IA North America funds have outpaced their benchmark over the past five years and the average active fund has delivered an index-like return.
But Baillie Gifford American’s total return of 362.4% is 256 percentage points higher than the gain made by the S&P 500.
This £7.7bn fund has received a lot of attention over recent years for its strong performance; it made the Investment Association’s highest return in 2020, for example.
The FE Investments team said: “Overall, the fund’s strong growth bias and focus on technology disrupters has led the fund to outperform in 2017 and 2019. Superior stock selection has fuelled the significant outperformance in 2020, above and beyond what would be expected from a growth strategy.”
Only two other IA North America funds have beaten their benchmarks by more than 75 percentage points: Morg Stnly US Growth and Morg Stnly US Advantage, both of which have a growth style similar to Baillie Gifford American.
There are 10 IA Global funds on the above list, with Multipartner SICAV Baron Global Advantage Equity being the best performer. It’s in second place overall, after beating the MSCI AC World index by close to 200 percentage points over the past five years.
This is another growth fund and it invests across the market-cap spectrum. It focuses on “competitively advantaged companies that are agents or beneficiaries of disruptive change on a global scale”, in areas such as artificial intelligence, cloud computing and gene editing.
Other IA Global funds on the list include GAM Star Disruptive Growth, Baillie Gifford Global Stewardship and Liontrust Global Smaller Companies.