Case for active strong with large caps

Actively managed US mutual funds shared the performance honours with Standard & Poor’s benchmark indices in 11 general equity categories during the first quarter this year.

S&P’s Indices Versus Active Funds Scorecard (SPIVA) reveals a majority of active funds outperformed five of the 11 benchmark indices, trailed the indices in five other categories, while one ended in a tie.

The SPIVA scorecard revealed the S&P MidCap 400 outperformed the US mid-cap funds by 51.5 per cent during the quarter, and the S&P SmallCap 600 outperformed US small-cap funds by 64.2 percent.

However, actively managed funds fared better in the large-cap category with 52.3 percent outperforming the S&P 500.

Growth and value funds experienced divergent fortunes during the first quarter. While a convincing majority of large-, mid-, and small-cap growth funds outperformed their comparable S&P growth indices, their value counterparts underperformed their S&P value indices.

S&P mutual fund strategist Rosanne Pane said “actively managed US large-cap funds, which can invest in foreign companies, have so far this year benefited from international markets outperforming the US market”.

“Active funds have also benefited from overweight positions in leading sectors such as real estate, telecom services, energy and materials.”

Contrary to popular belief about the effectiveness of active management in the small-cap space, according to Pane, the latest SPIVA report notes that active US small-cap funds have had lower equal- and asset-weighted returns than the S&P SmallCap 600 index and its comparable growth and value sub-indices for the past three and five years.

“The small-cap market is generally considered to be inefficient and favouring active fund management,” she said.

“Our results should provoke thought about the active versus passive issue in the small-cap space, particularly in the context of the large number of small-cap fund closings.”