During volatile and bear markets, active domestic equity managers are apparently doing their best work. Analysis by Morningstar shows that 62.9% of U.S. equity funds beat their benchmarks through the end of May. For the category, the average excess return was 1.36%.
“It’s not atypical to see success rates between 20% and 40% for certain categories of U.S. equity funds over three-, five-, and ten-year periods. So, this is high,” Morningstar’s chief ratings officer Jeff Ptak told Institutional Investor. “It’s a short period of time, but it’s high, and it represents a rebound of sorts of active U.S. equity funds, which had really slumped in recent years.”
Ptak added that he was “not too surprised to see success rates perk up for U.S. equity funds amid a declining market because that’s what you tend to see.”
Within active U.S. funds, large blend, small value, mid-cap blend, and mid-cap value were among the best categories.
“Active managers have the flexibility to take advantage of market volatility and add to favored positions when prices become more attractive,” said Todd Rosenbluth, head of research at VettaFi.
Investors continue to pump money into actively managed equity exchange-traded funds, particularly domestic equity funds. Citing FactSet data as of June 30, the New York Stock Exchange revealed that active equity ETFs brought in $30.7 billion in investor capital in the year’s first half.
Within equities, investors preferred domestic equity exposure to international and value to growth. Notably, ETFs focused on yield via a dividend tilt and/or an options overlay were leaders.
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