Passive mutual funds and exchange-traded funds that track a traditional index currently account for 32.5% of all UK equity funds; five years ago, in August 2011, they represented just 19.1%1. As this trend continues, I think it’s worth highlighting that many active managers have outperformed the broader UK equity market.
The FTSE All Share has returned 9.5% annualised over the past five years. In contrast, 162 actively-managed equity funds have outperformed this index, net of fees. If the FTSE All Share were a fund it would be 68th percentile within the UK All Companies IA sector over the past five years2 . In addition, as shown in the chart below, in the last 10 calendar years the index would have been in the top quartile just once, in 2011 when it was 23rd percentile3.
And when looking at a longer time period, active managers
have to generate significant outperformance to be top quartile. The chart below
shows the amount of return above the FTSE All Share that is required to be top
quartile in the UK All Companies on a rolling three-year basis annualised,
demonstrating the ability of active managers to outperform the index4.
Active fund managers have the flexibility to invest across the market cap spectrum, from the FTSE 100 to the FTSE Small Cap, and across sectors and investment style without reference to the index. Taking this additional active risk needs to be compensated with return and this is what many active managers have delivered.
Careful due diligence is essential to understand what each fund aims to achieve, how they are investing and whether their performance matches these expectations1. Out of the 237 actively-managed UK equity funds, many have delivered alpha in line with their expectations. These return profiles can therefore be used to complement an existing portfolio to help generate stronger risk-adjusted returns.
Read more about J.P. Morgan Asset Management’s UK equity fund range:
1Source: Morningstar, August 2016, Pound Sterling. 2Source: Morningstar, August 2016, Pound Sterling, all funds net of fees.
3Source: Morningstar, August 2016, Pound Sterling, Comparing returns to funds in IA UK All Companies, all funds net of fees. 4Source: Morningstar, August 2016, Pound Sterling, Rolling 3 years, 6 month step, net of fees.
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