Matt takes a look at the full-year performance figures for active managers across a variety of strategies.
Following the systematic selloff at the onset of the pandemic, coordinated central bank efforts, including quantitative easing (QE) and purchase programs aimed at supporting market liquidity, played a major role in stabilizing and improving the overall risk appetite. However, it wasn’t until the world received positive vaccine development news that the foundations of support laid by policymakers – like a bridge loan to an entrepreneur before they are pre-revenue – that a broad-based market rally started.
Despite the strong returns for risk assets, volatility remains elevated as the CBOE VIX Index registered 218 consecutive days above 20 to close out the year.1 With these erratic movements featuring big up and down days, to say 2020 was challenging would be an understatement. And the trends in active management performance reflect the boom/bust nature of last year.
To help inform investors’ decisions on where to be active in a portfolio, this charting the market highlights the full-year performance figures for active managers across a variety of strategies.
Equity: Hit and miss rates
For this analysis, we broke up the Morningstar universe by the traditional nine-box and overseas categories, calculating the percent of managers in each bucket that outperformed their respective prospectus benchmark (hit rate). This allows for more specific takeaways on which type of active manager did well, or poorly, in 2020. As shown below, only three market segments in US-focused strategies had a hit rate above 50%. As a result, I think it’s fair to conclude that most US active managers had a tough year in 2020.
1 Bloomberg Finance L.P. as of December 31, 2020
2 Morningstar, as of December 31, 2020
3 “When Indexing Wins and When It Doesn’t in US Equities: Updating and Extending the Purity Hypothesis”, Thatcher, The Journal of Index Investing, December 2018
4 Bloomberg Finance L.P. as of December 31, 2020
5 Bloomberg Finance L.P., as of December 2019, based on the average funds return within the category relative to the average Bloomberg Barclays U.S. Aggregate Bond Index rolling one year return (monthly granularity) and the Bloomberg Barclays U.S. Corporate High Yield Bond Index rolling one year return (monthly granularity) relative to the Bloomberg Barclays U.S. Aggregate Bond Index from January 2010 to December 2019.
6 Bloomberg Finance L.P. as of December 31, 2020 based on the return of the Bloomberg Barclays US Aggregate Bond Index and the Bloomberg Barclays US Corporate High Yield Index
7 Bloomberg Finance L.P. as of December 31, 2020
8 Bloomberg Finance L.P. as of December 31, 2020
9 This mitigates cyclicality or time dependency (i.e., start and end dates) that a straight line 10-year lookback would have
10 Morningstar as of December 31, 2020 based on data from January 2010 to December 2020
Originally Posted on January 12, 2021 – Charting the Market: A Boom/Bust Year for Active Management
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