Did active funds provide protection for UK investors in the market’s recent turmoil?

How have active funds stacked up against passive funds since the start of the coronavirus sell-off when it comes to the UK market?

One of the promises of actively managed funds is to better navigate choppy times in markets. Passive funds simply replicate the performance of the market, and therefore provide performance roughly in line with that of the market. In contrast, managers of active funds, so the argument goes, are able to make decisions about what is in their portfolio, so in theory should outperform an index during times of market turmoil.

As Michael Sun and Anastassia Lescure of Unigestion argue: “The Covid-19 outbreak is highlighting the importance of active judgement and context.”

They continue: “Compared to an index/rule based investment strategy, we have been proactively analysing both our top-down (country, industry and style) and bottom-up (stock level) decisions.”

So, how have active funds stacked up against passive funds since the start of the coronavirus sell-off when it comes to the UK market?

While the Investment Association (IA) includes passive index funds (and soon ETFs), its sectors are still dominated by active funds. Therefore, it is worth comparing the IA UK All Companies fund sector to the UK’s main indices. Since 20 February, the average performance of the sector was -35.33%. In comparison, the FTSE All Share lost 32.38% and the FTSE 100 30.22%.

UK-focused funds, therefore, lost on average more than the market. Part of that discrepancy is explained by fees (although higher losses due to higher fees is no consolation to the investor), UK funds on average did not even keep up with the market.  

However, when looked at individually, several funds did provide what they promised. Active fans will be pleased to know that best performing (or perhaps more accurately, least bad performing fund) since prior to the start of the sell-off(20 February to 19 March) was Ardevora UK Equity. The fund has lost 22.7%. In comparison, its benchmark MSCI UK IMI, is down 31.8%, with roughly similar for the UK’s main FTSE indices.

The top 10 best performing open-ended funds were all active. This included: VT Castlebay UK Equity (-23.7%). Lindsell Train UK Equity (-25.6%) and Investec Equity (-25.7%).  

The worst performance in the sector came from Quilter Investors Equity, with losses of -48.26%, and Merian UK Mid Cap with losses of 47.47%.

However, in total 58 out of 270 funds in the UK All Companies sector lost less than 32%. That means that roughly 21% of funds provided outperformance compared to the FTSE All Share. Of course, as ever, the problem is how possible it would have been for investors to identify which funds were more likely to provide cover in a sell-off in advance - assuming an investor is even looking for such defensive funds.

From looking at the data, there was no immediately discernible pattern of growth or value funds seemingly more likely to find themselves in the top or bottom of the performance table. Several value funds were listed among the top performers and several were found among the worst performers. It was similar with growth. There was a slightly noticeable trend of more income funds among the best performers, however.

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