This year we had the worst equity fund managers of the decade. Well done!

For many fund managers, 2014 has been a more difficult year than any other in the preceding decade. This lack of performance has precipitated a great deal of criticism from many private and institutional investors. According to a stock market report published by Bank of America Merrill Lynch, no more than 20 percent of fund managers have been successful in beating the market through the end of October this year.

Some of the most invested funds have performed poorly this year and less coveted stocks were the prime driver of the market. The steep fluctuations in this last month of the year have added to the losses of fund managers across the board. The most successful fund managers of the past have been losing ground to upstart, less cost-prohibitive options in the market. Investors also diverted their interests towards ETFs. It has been observed that many of the most well-capitalized mutual-funds were investing most of their capital in smaller cap options and were less invested in larger ones, even though these larger-cap options have performed much better than the smaller ones.

To further their woes, the most devoured technology and energy stocks have also faded in October, because of concerns towards a slowing of the global economy, heightened valuation of stocks and descending crude prices. BofA data includes all large-cap equity funds in the United States. It also covers the stocks tilted towards value stocks or growth companies that are managed. This year only 17.7 percent of stocks in the market have outperformed the Russell 1000 index of large-cap fund versus 40.5 percent in the previous year. BofA has analyzed performance of the fund managers since 2003 and has found it positive only in 2007. With $199 billion being put into ETFs in the first three quarters of 2014, the total investment in these index has reached $2.6 trillion.

Mutual funds with focus on low-cost stocks also have become attractive for investors. For example, the Vanguard Total Stock Market Index fund has toppled the the Pimco Total Return Bond fund behind for status as the world’s largest mutual fund with a market capitalization of $370bn. Some working fund managers have tried to justify the unexpected growth of passive funds by arguing that while a normal manager may perform below expectations, it is likely that an active fund management has the capacity to outperform the market on a consistent basis. Nevertheless, BofA suggests that most active funds are trailing the performance of the Russell 1000, which has risen by 9.6 percent this year. Good luck for 2015!

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2 responses to “This year we had the worst equity fund managers of the decade. Well done!

  1. Pingback: Bolster Your Returns with Smart-Beta: Fact or Fiction? | Alpha Banker·

  2. Pingback: Massive Inflow for Vanguard: The case for passive investment | Alpha Banker·

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