European stock pickers’ success rates remain low over the long term, according to Morningstar’s Active/Passive Barometer report.
The report analyses approximately 10,840 active and passive funds, domiciled in Europe. The active/passive barometer compares the performance of an active fund with its passive counterpart as well looking at the survival rates of funds within a specific category and time period. The report is to assist investors in better calibrating the odds of succeeding with active funds depending on recent trends.
Out of the 66 categories studied over the decade leading up to June 2019, only two were led by active managers both surviving and outperforming their average passive peers.
Over the same time frame, active managers’ success rate was less than 25% in nearly two-thirds of the categories surveyed. Only a small percentage (9.1-35.5%) of active managers beat their passive benchmarks within Europe large-cap, global large cap and emerging markets categories.
Another recent report by Morningstar found a significant number of investors use passive strategies for equity exposure but remain active for fixed income.
Active managers did manage to outperform their average passive peers in some categories including UK mid-caps and Pacific ex-Japan.
Morningstar says survivorship rates are positively correlated with odds for success. Active funds are usually closed following long periods of underwhelming performances.