Many believed this would be the year that active stock pickers and mutual fund managers could choose their battles to generate alpha. However, the majority of active managers continued to underperform benchmark indices, bolstering the case for passive index-based exchange traded funds.
Goldman Sachs analysis found that over the first two months of the year, only 28% of large-cap mutual fund managers beat their benchmarks and only 1% are showing positive gains, reports Jeff Cox for CNBC.
The underperformance stands in stark contrast to many Wall Street calls that rising volatility and dissipating correlation between assets would benefit active management.
“Despite the greater alpha return opportunities that come with higher dispersion, the market environment has been challenging for investors,” Goldman strategist David Kostin said.
Weighing on active funds, momentum stocks have been underperforming, notably the crowd favorite FANGs, or Facebook (NasdaqGS: FB), Apple (NasdaqGS: AAPL), Netflix (NasdaqGS: NFLX) and Google (NasdaqGS: GOOG).
Moreover, growth stocks lagged value and conservative plays this year.
Year-to-date, the iShares S&P 500 Growth ETF (NYSEArca: IVW) fell 5.0%, Vanguard S&P 500 Growth ETF (NYSEArca: VOOG) dipped 5.0% and SPDR S&P 500 Growth ETF (NYSEArca: SPYG) dropped 4.9%.
Meanwhile, value plays did not retreat as much as the growth category. Year-to-date, the iShares Russell 1000 Value ETF (NYSEArca: IWD) was down 4.5%, Vanguard Value ETF (NYSEArca: VTV) was 3.8% lower and iShares S&P 500 Value ETF (NYSEArca: IVE) declined 3.6%.