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Active Still Not Rebounding

Some observers have pointed to the volatility of the market this year as an opportunity for active managers to regain some of the ground lost to their passive competitors over the last decade.

July data from Morningstar did show some interest in active plays in sector funds, but overall investors have continued their avoidance of actively managed equities. Of the record $45.5 billion in estimated net outflows from U.S. equity funds in July, nearly 60% were accounted for by active equity managers. The picture was worse for international equities. Outflows from active international funds in the month were five times those from passive vehicles. Companies hardest hit included American Funds, Invesco, DFA and Fidelity.

It’s worthy of note that on a trailing 12-month basis, actively managed U.S. and international equity funds have lost a substantial $334 billion, while passive funds in the same classes have grown by a net $73 billion.

While renewed volatility is likely going forward, the broad market has recouped most of the losses suffered early in the pandemic. This gives added support to the “buy and hold” crowd as well as to the index investors that had the fortitude to stay invested. It’s likely that if active is to make a comeback, it will probably have to wait until next year and will depend in large part on any relative performance gains sustained through 2020.