Australian Shares, Fixed Income, Investments

Active managers struggled in 2023

Active managers Vanguard S&P Dow Jones Indices

Actively managed investment funds on the whole struggled to outperform the benchmarks against which they are assessed in 2023.

The latest report measuring the performance of actively managed investment funds for 2023 has shown contrasting results across several asset classes against their benchmarks.

The 2023 S&P Dow Jones Indices “SPIVA Australia Scorecard” revealed over 75 per cent of active Australian general equity managers were unable to match their nominated performance measures.

To this end, the general equity category produced the second-worst performance results on record with 77 per cent and 81 per cent underperformance rates for domestic and international shares respectively.

However, active managers fared better, specifically in the fixed income asset class where relevant benchmarks were outperformed by three-quarters of Australian bond managers.

According to S&P Dow Jones Indices, the findings for this category indicate investors taking on higher levels of risk were rewarded particularly with regard to higher-yield and longer-dated bonds, which both outperformed. Further, the financial institution recognised bond managers were well positioned to take advantage of these circumstances.

Also noted was the year-on-year fluctuation in performance from various industry sectors, whereby information technology and consumer discretionary were the best performers in 2023, recording respective gains of 31 per cent and 22 per cent. This was in complete contrast with the previous year when IT and consumer discretionary registered losses of 34 per cent and 20 per cent respectively.

Vanguard Asia-Pacific chief investment officer Duncan Burns noted the data represents a compelling case as to the merits of using indexed funds as the core component of an investment portfolio.

“This year’s results could be summed up simply as most active managers underperform their passive benchmarks most of the time. This is emphasised by the one-year underperformance for active Australian equity and international equity funds rates being at their second highest in recent years,” Burns noted.

“The active underperformance rates are even more dismal over the longer term, with 85 per cent of active Australian equity funds and around 94 per cent of active international equity funds underperforming their index benchmarks over a 15-year period.

“Findings like these are not isolated to the Australian financial markets; the reporting shows similar long-term results in global share and bond markets.

“This is not to say active fund managers can never outperform the broader market. A number of exceptional active managers do. Active bond managers did well, particularly in the last 12 months, although the majority underperformed when looking at the last three-year period. But the report serves as a good reminder that beating the market is really much harder than most people think.”


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