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Despite a tough 2016, the category average has remained ahead of the index over the longer term

Following strong outperformance during the previous 12 months, last year was a tougher period for active European ex UK funds, as the average offering in the Morningstar category has underperformed the MSCI Europe ex UK index by around 2.7 percentage points.

Nevertheless, the sector average remains ahead of the index over three, five and 10 years, suggesting active managers have added value in aggregate over these periods.

Given the robust longer-term performance track record of active funds in the sector, then, why did 2016 represent more of a struggle?

Samuel Meakin Investment research analyst, Morningstar

Style reversal

One reason was that there was a reversal in the style leadership in the market during the second half of the year.

Having been out-of-favour since a strong performance in 2013, value outperformed growth in the latter half of 2016, with some of the more cyclical areas of the market rallying after a prolonged period of market leadership by stocks classed as sturdy, low-volatility and quality.

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