In a previous article we saw that the average active fund tracking the FTSE All Share marginally outperformed over the long term, but the reverse is the case with the S&P 500 index.
Our data shows that the average active fund benchmarked against the S&P 500 has made 117.85 per cent over the last decade while the S&P 500 has made 122.21 per cent.
However, the only tracker available through that time did worse, making just 113.61 per cent, which suggests that active management at least mitigated the losses made to the effect of fees.
Performance of funds versus benchmark over 10yrs
Source: FE Analytics
There are relatively few genuinely active funds to take into consideration over this time frame – just 23.
The HSBC American Index tracker fund has a tracking error of 2.17 per cent over 10 years, lower than all the active funds under consideration, meaning none were excluded for having a dubious benchmark.
Data from FE Analytics shows that the majority of active funds have a positive information ratio over 10 years, meaning that they have added value with their stock-picking decisions.
Of the 23 funds, 13 have a positive information ratio, or 57 per cent. The information ratio gives us the value added per extra unit of risk that the manager has taken on versus the index.
The alpha added by the manager is divided by the tracking error to give a measure of risk/adjusted returns.
The major reason for the funds' underperformance is likely to be fees, with the compounding effect of higher charges taking away many of the gains made by stock-picking.
With fees coming down across the industry thanks to the retail distribution review reforms, it will be interesting to see if active funds start to perform better.
Our data shows that active funds have outperformed over the past few months, but that the longer the time that is considered, the larger the gap that opens up.
Performance of funds versus index
| Name | 1m | 3m | 6m | 1yr | 3yr | 5yr | 10yr |
|---|---|---|---|---|---|---|---|
| Active S&P500 TR in GB | 8.48 | 11.82 | 26.77 | 32.55 | 46.81 | 65.22 | 117.85 |
| S&P 500 TR in GB | 7.71 | 11.43 | 27.27 | 34.38 | 53.07 | 69.38 | 122.59 |
Eleven funds have beaten the S&P 500 over 10 years in total return terms, net of fees, while 12 failed to do so.
The best performer was Neptune US Opportunities, which made 173.9 per cent over the time in hand, compared to the 117.85 per cent average of S&P 500 funds.
The fund is run by Felix Wintle, but he took over only in August 2005. The vast majority of the portfolio’s outperformance has come since he joined, however.
Our data shows that since Wintle has been manager, the fund has made 113.52 per cent and the S&P 500 only 77.13 per cent.
Jupiter North American Income has the next-best 10-year returns, having made 159.94 per cent over the past decade.
The fund has been managed by Sebastian Radcliffe for the entirety of the period.
FE Alpha Manager Gordon Grender’s GAM North American Growth has made 154.93 per cent over the time in question.
Performance of fund versus index over 10yrs
Source: FE Analytics
Grender has run the five crown-rated portfolio since 1985, and despite a long track record of consistently beating his benchmark the manager’s fund is still only £199m in size.
Two funds run by Cormac Weldon for Threadneedle have also beaten the index over that time, as has the Baillie Gifford American fund.
Another way investors could have beaten the index was to go for an exchange traded fund [ETF].
The iShares Core S&P 500 ETF has made 134.95 per cent over the past decade, according to data from FE Analytics, while the S&P 500 has made 122.21 per cent.
Performance of ETF versus index over 10yrs
Source: FE Analytics
iShares practice stock-lending, whereby they lend shares they hold in their ETFs to other investors for a fee and use the proceeds to reduce charges for the ETF investor.
This is one reason why the ETF may have outperformed the index it was supposed to track.
The iShares fund has ongoing charges of just 0.07 per cent, having come down from 0.09 per cent in 2012.
