Does active fund management pay after all?

A recent report suggested more active fund managers beat their benchmark last year. Have they got better at their jobs? Sarah Moore investigates.

Studies consistently show that the average fund manager underperforms the market. So the latest fund performance report from S&P Dow Jones Indices contains a surprising statistic. Over the past year, just 8% of UK large-cap and mid-cap funds lagged behind their benchmark. European equity funds also did surprisingly well: just 33% of Europe ex-UK funds underperformed. So does this mean fund managers have suddenly become much better at their jobs?

Unsurprisingly, the answer seems to be no. One theory is that the unusually high returns are due to the funds' out-of-benchmark exposure to small-cap stocks, says Tim Edwards, senior director of index investment strategy at S&P Dow Jones Indices. Smaller stocks have fared particularly well over the past 12 months (UK small caps are up 6% this year, while large caps are down 4%).

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Sarah is MoneyWeek's investment editor. She graduated from the University of Southampton with a BA in English and History, before going on to complete a graduate diploma in law at the College of Law in Guildford. She joined MoneyWeek in 2014 and writes on funds, personal finance, pensions and property.