2016 was one of the most challenging years for professional stock pickers.
The chart below from a JPMorgan US Equity Strategy note released on Wednesday shows that only 32% of active quant funds and active long only funds outperformed their benchmarks in 2016, compared to 63% in 2015. On the whole, 68% of active funds underperformed relative to benchmark returns.
Active managers make a living by trying to beat the index, so when they don’t, it’s not surprising that investors opt to trade in the higher fees for these products for lower cost passive investments.
This underperformance has led to a “record rotation” from active to passive investments in 2016, according to the note. Investors pulled $200 billion from active US equity funds in the single largest annual rotation out of active management.
Meanwhile, passive equity funds captured $150 billion of inflows.
“Greater understanding of passive products, their relatively lower fees and disappointing performance of active funds are likely driving the secular shift into more passive products,” the JPMorgan note said.
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