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Q1 2018: Difficult start of the year for active managers

Lyxor Manager Monitor Q1 2018…

By Marlène Hassine Konqui, Head of ETF Research and Kristo Durbaku, ETF Research Analyst


Highlights

  1. Active manager performance declines

39% of active managers outperformed their benchmark in Q1 2018 – a slight drop from last year’s 44%. 42% of equity managers outperformed vs. the 47% we saw in 2017, while 32% of fixed income active managers outperformed (vs. 39% in 2017). Long-term results still suggest only 1 in 4 active managers outperforms over 10 years.

  1. Equity active fund performance weakens

 Over the quarter, equity managers failed to come to terms with the more volatile environment and increasing correlations. The main weaknesses were found in biggest, more efficient markets like the World, Japan, US and Eurozone. Interestingly, performance also tailed off in some less efficient markets like US and European small-caps and Italy. In contrast, we saw the biggest improvement in the UK all-cap universe where 75% outperformed in Q1 2018 (see our special focus on p5).

  1. Fixed income managers still find the environment challenging

32% of fixed income active managers outperformed their benchmark in Q1 2018 vs. the 39% we saw last year. Credit managers were again largely to blame, with only 18% of euro and 19% of US corporate bond managers outperforming. Global bond managers again enjoyed the best results with 74% of them finishing ahead vs. the 67% that beat the benchmark in 2017. Euro inflation-linked bonds are the only area of real improvement – with 29% outdoing their index vs. 9% in 2017.

  1. Fixed income active fund flows decline sharply

Overall, European domiciled active fund flows declined by 46% in Q1. This is mainly explained by a decline of 82% for fixed income funds to €10.7bn, which could in part be explained by the very poor results we’ve seen. In contrast, we saw a significant increase in passive equities flows. On the active side, equities flows have continued to increase (from €23bn in Q4 2017 to €33bn in Q1 2018) despite the declining results.

Blending active and passive management in Q1

In fixed income, the less favorable credit spread environment caused issues – most obviously among investment-grade credit where passive clearly won out 

When it comes to equities, US, emerging markets, World and Japan managers clearly struggled. Favoring passive products in these areas may have made more sense

However, in the European universe more than half of active managers outperformed, mainly driven by the good performance of UK managers. Selecting the best managers in this area would have been positive for portfolio construction

Source: Morningstar and Bloomberg data from 31/12/2007 to 29/03/2018. 

Source: ETFWorld

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