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Enthusiasm for active funds has taken a hit during the past year but a look at the long-term performance of UK smaller companies over rolling periods shows opportunities are always there for the smartest stockpickers

Fund trends UK smaller companies

Numerous studies over the years have demonstrated the challenges active funds face in outperforming the market year in, year out. It is now coming to the point where an increasing number of investors consider active management to be a waste of time and money.

Much attention is paid to reports that highlight the general underperformance of active funds against the benchmark. The recent Spiva report from S&P Dow Jones Indices, for example, said active funds “generally underperformed their benchmarks across all time periods” and spawned a raft of headlines championing the merits of cheap index- tracking products.

The reputation of active funds slipped further after their poor showing in 2016, when many were wrong-footed by surprises such as the Brexit vote and Trump’s presidential victory. Active funds lagged behind their respective benchmarks as a result.

Nowhere was this more apparent than in the UK. Chart 1, on page 56, reveals how the average fund in the IA UK All Companies sector fell behind the FTSE All Share by amost six percentage points last year, and this trend was seen in other equity markets, too.

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