Active Managers Are Suffering a Perilous Pandemic

The failure of equity fund managers to deliver outsize returns commensurate with the fees they charge for their stock-picking services continues to be a source of ammunition for advocates of lower-cost index tracking products. Less scrutinized, although equally dreadful, is the seeming inability of their bond brethren to offer a fixed-income alternative that can generate benchmark-beating performance.

Hence the existential crisis that still threatens the entire active fund management industry.

The pandemic, it seems, hasn’t changed anything, according to S&P Global Inc.’s Dow Jones Indices Unit’s just released update on how the active crowd is doing compared with the benchmarks against which its performance is measured — or, perhaps more accurately, against the index-tracking funds that investors can buy to gain market exposure at a lower cost. Overall, it’s not a pretty picture.

In the first half of the year, fewer than a third of U.S. domestic equity fund managers delivered annualized returns that outpaced the S&P Composite 1500 Index. While that’s their best — or least-bad — performance compared with longer periods, it still destroys the argument that stock pickers can outperform in volatile markets. It means even amid the pandemic-inspired swings seen in equity prices in recent months, two-thirds were still unable to beat the index.