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PASSIVES GET AGGRESSIVE

Passive vehicles made gains as active funds struggled in the global equities sector, with value investing finding favour once again

Fund selector Global equities

Peter Brunt Senior analyst, manager research, Morningstar

Looking at the returns of the Morningstar global equity categories (Global Large- Cap Value/Blend/Growth Equity, Global Flex-Cap Equity and Global Equity Income) relative to the MSCI World index, the average active fund has underperformed over nearly all timeframes. The picture does not look much better against the MSCI ACWI index either.

With the greatest investible universe, funds that invest in global equities arguably have the greatest scope to outperform. Such underperformance is therefore all the more disappointing and highlights the challenges active managers face.

It is no wonder that passive vehicles have gained considerable assets in global equities (the largest two funds across all global equity categories are index trackers). That said, there remain plenty of active managers that have shown they can outperform over the long term, some of which are included in the following lists in this fund selector.

In terms of investment style, 2016 marked a return to favour for value investing. Having underperformed their growth counterparts in 2015 – the Morningstar Global Large Cap Value Equity category average lost 3.9% in USD terms, while the Large- Cap Growth Equity category average gained 0.32% – last year brought welcome relief to value-oriented funds. The Global Large-Cap Value Equity category average gained 7.4% against the Global Large-Cap Growth Equity sector average’s return of 0.9%.

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