Jan 20

Active managers smash passive managers in 2009

Yesterday Morningstar released their investment performance league tables for each of the major asset classes for the Australian market. For almost every asset class in 2009, a higher proportion of active manager outperformed the index funds, like Vanguard, than underperformed.

Vanguard’s 1 year performance rankings for each asset class are…

  • Australian Shares – 55th out of 99
  • International Shares (Unhedged) – 55th out of 77
  • International Shares (Hedged) – 10th out of 16
  • Australian Fixed Interest – 27th out of 30
  • International Fixed Interest (Hedged) – 18th out of 20
  • Australian Property – 21st out of 34
  • International Property – 10th (Hedged) and 24th (Unhedged) out of 27

Now these performance rankings by Vanguard are pretty bad as they are expected to perform around the middle of rankings, but a couple of things need to be kept in mind. Firstly, risk was rewarded in 2009 with significant growth in small cap equities and credit securities…the index funds are biased away from these and more conservative in nature and the performance tables are not adjusted for these risks. Secondly, these league tables always have a survivorship bias towards the winning funds…funds all around the world as well as in Australia disappeared during 2008 and 2009.

After the disaster of 2008 there was an enormous shift towards passive managers after numerous active managers fell over. Given the outperformance by active managers in the Morningstar league tables, will we see a shift out of passive and back into active in 2010?

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