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Alternative Market Briefing

Lipper research highlights difficulties in picking outperforming actively managed funds

Tuesday, May 08, 2012

Beverly Chandler, Opalesque London: A report from Lipper by Ed Moisson, head of UK and Cross-Border Research, examining how successful actively managed mutual funds in Europe have been in out-performing indices over the past twenty years, finds that typically 40% of equity funds out-perform their benchmarks, although this figure varies widely over time and for funds investing in different regions.

In Beating the Benchmark Moisson writes: "Active fund managers’ ability to out-perform their benchmarks sits near the heart of any discussion on the relative merits of active versus passive investing". It is the different level of risk in actively managed funds and the associated additional cost of actively managing investments that weighs against their popularity. Investors are concerned that actively managed funds will, against all that, significantly under-perform the index, Moisson says. "The argument against investing in a passively managed fund is that one not only misses out on the possibility of superior returns that an active manager can offer, but also that, in principle, one is guaranteed to under-perform the index".

However, going by statistics alone, the active fund management industry is clearly more popular with actively managed equity funds in Europe standing at just under €1.5trn, ($1.31trn) while index trackers have €160bn ($209bn) and ETFs €139bn ($181bn). "In other ......................

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