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Passive UCITS outperformed their active counterparts over the past decade, but not across all equity sectors, according to analysis by the European Fund and Asset Management Association (EFAMA).
Between 2014 and 2023, EFAMA figures found that passive equity UCITS returned 8.3% a year on average, comfortably beating active equity UCITS, which returned just 7.0%.
However, industry-specific results indicate that some industries lend themselves to active approaches more than others.
For example, passive reigned supreme in the technology and healthcare sectors during the period, with passively managed funds returning an average of 13.4% and 10.0% respectively, outperforming their active peers by just 12 .7% and 8.5%.
But it was a different story in the energy and financial sectors.
In energy, actively managed funds returned 1.1% annually over the decade, well ahead of passive returns that were negative. Active financial funds, meanwhile, posted annual gains of 7.0% over the 10 years to 2023. Their passive counterparts, on the other hand, mustered just 4.3%.
The Sharpe ratio, a measure of risk-adjusted returns, paints the same picture. The technology and healthcare sectors favored a passive approach, while energy and financials favored the active.
Vera Jotkanovic, senior economist at EFAMA, said: “Our analysis reveals significant differences in the average net return of sector equity funds, with neither passive nor active funds consistently outperforming each other.”
Based on the analysis, fund selectors should exercise discretion when deciding between active and passive approaches for different industries.
In the US, meanwhile, there are nearly 1,600 actively managed ETFs traded in the markets, with total assets under management of $754.34 billion and an average expense ratio of 0.71%. Asset classes include fixed income, equities and commodities, and the largest actively managed ETFs are the JPMorgan Equity Premium Income ETF (JEPI) and the Dimensional US Core Equity 2 ETF (DFAC).
This article was originally published on our sister site, etfstream.com.
