The volatility that stopped the bull market in US stocks in its tracks after hitting record highs in January is rewarding stock-picking fund managers. Approximately 60 percent of US actively managed large-cap funds are beating their benchmarks for the year to date, the best performance through April for any year since at least 2009, according to research from Bank of America Merrill Lynch.
So-called growth funds posted the largest outperformance, with an average of 67 percent of funds beating their benchmarks, followed by a 57-percent outperformance rate for value funds and 52 percent for so-called core funds, which blend both value and growth strategies. Fund manager investments in Amazon.com Inc and Netflix Inc, both of which are up more than 35 percent for the year to date, helped boost the returns of large-cap funds, noted Savita Subramanian, equity and quant strategist at Bank of America Merrill Lynch.
Overall, the average large-cap fund has gained 0.6 percent for the year, compared with a flat S&P 500, Bank of America Merrill Lynch noted. Small-cap fund managers, meanwhile, have underperformed compared with the benchmark Russell 2000, with just 37.4 percent of funds beating the index. While the outperformance will reward investors who have remained in actively-managed funds, it may not be enough to stem the tide of dollars flowing into low-cost passive funds, said Todd Rosenbluth, director of mutual fund research at New York-based CFRA.
"It's still going to be a challenge to win back investors and advisors that went toward lower-cost, more consistent index based strategies," Rosenbluth said. "Once you've crossed that river, it's hard to come back." Funds run by stock pickers would need to post at least a year of strong outperformance to rekindle the interest of advisors who are now more focused on costs, he said.
Shares of actively-managed fund companies are outperforming for the year to date, as performance gains and the anticipation of higher investor flows boost investor optimism. Shares of T Rowe Price Group Inc are up 6.4 percent year-to-date, while shares of BlackRock Inc - best known for its iShares line of passive exchange traded funds - are up just 1.2 percent.