BofA Merrill Lynch and S&P (SPIVA) have each recently reported the outperformance of active management versus market-cap-weighted indices so far this year. With record-low volatility and low stock correlations, some are proclaiming the return to favor of active management after years of suffering outflows to passively run index funds.
Our own analysis of the active mutual fund universe shows more of a mixed story. By focusing on the oldest share classes and screening out sector funds and volatility/beta-themed funds, we find the S&P 500 outperformed 68% of the 321 active large core funds with a YTD return of 14.32% through 9/30/2017 (Figure 1).
Figure 1: Distribution of YTD Returns (through 9/30/2017) for Active Large Core Funds
However, active large-cap growth and value funds have fared better this year against their style benchmarks. The S&P 500 Growth Index has only outperformed 41% of the 365 active large growth funds (Figure 2) while the S&P 500 Value Index has only outperformed 32% of the 301 active large value funds (Figure 3). This shift in fortunes has not gone unnoticed, as actively managed funds saw $2 billion in inflows during the week ending 10/11, the first inflows in 11 weeks.
Figure 2: Distribution of YTD Returns (Through 9/30/2017) for Active Large Growth Funds
Figure 3: Distribution of YTD Returns (through 9/30/2017) for Active Large Value Funds