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40% of actively-managed equity funds out-perform benchmarks, says Lipper

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Typically 40% of equity funds out-perform their benchmarks, according to a new research report from Lipper – “Beating the Benchmark”.

This figure not only represents the proportion of equity funds that have out-performed in the most recent three years, but also approximates the average proportion of equity funds that have out-performed for one, three and 10-year rolling periods over the past 20 years.
 
However this proportion varies each year (broadly between 30% and 60% of funds).  It also varies for funds investing in different regions (which can be between 20% and over 50% over different periods).
 
Looking at actively-managed equity funds’ performance relative to their benchmarks over 1, 3 and 10 years to the end of December 2011, the proportion of funds that out-performed varied from 26.7% in 2011, 40.0% over 3 years and 34.9% over the past 10 years.
 
Actively-managed bond funds fared better over 3 years (45.4% out-performed), but the proportion tailed off dramatically over the 10-year period, falling to 16.2%. The latest year was similar to that for equities, with 23.7% of bond funds out-performing their benchmarks.
 
To account for survivorship bias, the report looks in greater detail at rolling 1, 3 and 10-year periods since 1992. For 1-year rolling periods the proportion of equity funds that have out-performed their benchmarks has varied between 59.1% and 26.7%, coincidentally the first and last years in this analysis. The annual average is 42.8%.
 
Author of the report, Ed Moisson (pictured), Head of UK & Cross-border Research at Lipper, says: “Needless to say this will not end the active versus passive debate, but it should make a useful contribution to understanding better how successful active fund managers have been in delivering on their objectives. Such insights can better inform this ongoing discussion.”
 

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