28 March 2022
Fund Management, Innovation and Products
The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, is publishing the outcome of a study analysing the performance of actively managed equity Undertakings for Collective Investments in Transferable Securities (UCITS) relative to their prospectus and market benchmark indices, between 19 February 2020 and the end of June 2020.
The results shed light on equity fund performance by type of management, especially during a period of stress such as the first wave of COVID-19. ESMA concludes that actively managed funds did not consistently outperform passive during this period.
The strong market downturn at the beginning of the period followed by a fast recovery and then stabilisation offered a real-life opportunity to test the accepted hypothesis that active equity UCITS outperform their benchmarks during stressed market conditions.
The main findings show that the sample of funds considered active funds, net of ongoing costs, did not on average outperform their related benchmarks. More than half of the active UCITS analysed underperformed their benchmarks during the stressed period (between 19 February and 31 March) and more than 40% during the post-stress period (between 1 April and 30 June). Only funds belonging to the highest-rated class consistently outperformed the benchmarks. For the rest of the funds analysed, benchmark-adjusted performance hovered around zero or was clearly negative.