Just 42% of active equity funds have managed to beat common benchmarks over 2021 to date, Trustnet research shows, while passive funds have tended to make higher returns for investors. 
The average active fund has outperformed its passive counterpart in just nine of the Investment Association’s 23 equity sectors over 2021 so far, according to our analysis of close to 2,000 funds.
The best result came from the IA UK Smaller Companies sector, where active funds have made an average total return of 21.9% this year, compared with 12.6% from its sole passive member.
In addition to the IA UK Smaller Companies’ 9.3 percentage point gap between the average active and passive funds, other sectors where active funds are in the lead include IA European Smaller Companies (ahead by 3.4 percentage points), IA India/Indian Subcontinent (2.4 percentage points) and IA Japanese Smaller Companies (2.2 percentage points).
Source: FinXL, performance as at 31 October 2021
However, as the table above shows, active funds have generated a lower total return than passives, on average, in 14 of the 23 IA equity sectors.
IA Financials and Financial Innovation saw the worst relative showing from active funds. The average active member of that sector is up 16.6% over 2021 so far; while this is decent, it is 18.3 percentage points below the 34.9% average return from the peer group’s two trackers.
Active funds are also underperforming passives in sectors such as IA Commodity/Natural Resources, IA Technology & Telecommunications and IA Global.
There’s also bad news for active funds when we look at how many were able to beat the market over the first 10 months of 2021. Do this this, we compared their performance against the most commonly used benchmark in each sector.
Overall, just 42.2% of the active equity funds examined in this research – or 658 out of 1,561 – made a total return higher than the index. How this breaks down on a sector level can be seen in the following chart.
% of active funds outperforming and underperforming in 2021 to date
Source: FinXL, performance as at 31 October 2021
The IA Financials and Financial Innovation sector comes in bottom place here as well, with 18.2% of active funds (or nine out of 11) making a lower return than the MSCI AC World Financial index’s 27.1% gain.
The only two active members of the sector to beat this index over the year so far are Guinness Global Money Managers, which is up 46.7% and is the best performer of all the active and passive funds in the peer group, and Fidelity Global Financial Services, which narrowly outperformed with a 28.2% return.
Active funds in the IA North America sector also struggled, again with less than 20% beating the market. That means 124 of its active members are behind the S&P 500 in 2021, while only 30 are outperforming it.
Just five active funds have made a return that is 5 percentage points or more above the S&P 500’s 23.3% rise: Brown Advisory US Sustainable Growth (up 29.9%), Wells Fargo Worldwide US Select Equity (29.8%), VT De Lisle America (29.7%), Dodge & Cox US Stock (29.6%) and SVS Sanlam North American Equity (28.5%).
In all, there are 14 sectors where more active funds are lagging behind the benchmark than outpacing it, including popular ones such as IA Global, IA UK All Companies and IA Europe Excluding UK.
The sector with the best result is IA China/Greater China, where 79.5% of active funds have posted a higher return than the MSCI China index this year.
However, in reality, this means that active funds have been better at minimising their losses rather than making strong returns for investors as the MSCI China index has fallen 14.3% over 2021. The average active IA China/Greater China fund, on the other hand, has lost just 7.7%.
Only seven funds from the peer group are in positive territory this year, with AQR China A Equity UCITS’ 8% return being the strongest by some margin.