Is the performance of active equity managers still cyclical?

July 2018

In this paper, we explore whether active equity manager outperformance is cyclical.

To help inform this discussion, we review the historical trends of how active equity managers have fared, identify the significant variables that have adversely impacted active equity management since the Global Financial Crisis (“GFC”), and hypothesize about the types of market environments in which active equity manager relative performance may prosper. We believe that, while active management is a zero sum game in the long term, a meaningful portion of the active equity manager universe will outperform and potentially generate attractive risk-adjusted returns. However, it is challenging to determine whether the recent manager underperformance will persist. That said, if history is a guide, when the market eventually turns downward, if stock market dispersion and breadth increase, and if the outflows from active into passive temper, active equity managers should be in a better position to outperform their passive counterparts with greater frequency and magnitude.