In last year's turbulent investment environment, active asset managers made the case their services were indispensable. A UBS analysis paints a sobering picture.
Last year should have been a bonanza for actively managed equity funds, yet those in Europe posted their worst performance in more than two decades, according to a UBS analysis.
The findings as reported by the «Financial Times» (behind paywall) on Monday, are quite surprising. It is precisely in the volatile environment that characterized 2022 that active equity managers who aspire to invest better than the market average should have excelled.
Significant Underperformance
Last year, active equity funds based in Europe posted their worst performance relative to their respective market indexes since UBS began its analysis in 2000. Their ability to generate alpha, the excess return versus the index, came at a minus 4.13 percent overall after management fees.
According to the report, things went particularly badly during the first half of the year, when active European equity funds realized 96 percent of the underperformance.
The authors attribute the poor performance to heavy rotation away from growth stocks, where rising interest rates from central banks had an extremely strong impact on their valuation.
Benchmark Mismatch
Another reason the authors suspect is the selection of the benchmark, where several funds showed a mismatch between their underlying strategy and the choice of their primary benchmark index.
The opposite occurred during 2020 which was another volatile year for equities when active equity managers were generating significant excess returns, reaching 20-year highs.
Excess returns for fixed-income funds were also negative, but not out of the ordinary at minus 0.46 percent, according to UBS. Still, 2022 was the worst year for the alpha generation since 2018.
