Bad times for active fund managers again: Vast majority are underperforming this year

Pedestrians pass in front of the exterior of the New York Stock Exchange (NYSE) in New York.

Actively managed funds are stumbling again this year.

J.P. Morgan shared the latest performance data with its clients, revealing only 41 percent of active fund managers are beating their benchmark year to date versus 52 percent last year in the same time period.

“Active equity managers are facing a challenging year … with performance highly bifurcated across styles,” U.S. equity strategist Dubravko Lakos-Bujas said in a note to clients Friday. “Large/Core Funds … category has been underperforming due to narrowing stock leadership YTD, fewer opportunities (low stock dispersion), and a series of market narratives driving style and sector rotations (e.g., fiscal/monetary policy, inflation scare, trade tensions).”

Lakos-Bujas noted 66 percent of value funds are outperforming their benchmark versus just 43 percent of growth funds. But the value index is roughly flat this year versus the growth index’s 12 percent gain, offering a lower performance threshold to beat.

Investors are reacting to the weak numbers by pulling $28 billion from active funds and adding $18 billion to passive funds during the second quarter.

“We estimate that Passive is now more than 50% of equity AUM,” the strategist said.

To be sure, active managers aren’t doing everything incorrectly.

On Thursday Facebook shares plunged 19 percent a day after its disappointing earnings report, resulting in the largest one-day market value lossin history for a U.S. stock.

Goldman Sachs strategist Arjun Menon said in a report Thursday mutual funds were “underweight FB, which boosted performance relative to benchmarks.”

The average large-cap mutual fund is underweight Facebook by 20 basis points versus its benchmark, according to Menon.

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