In 2020, 55% of active global managers underperformed the MSCI World Index (gross of fees), with the median manager underperforming by 150 basis points (bps). The shortfall was the worst since data began in 2000. After incorporating a fee proxy of 70 bps, 56% of active managers underperformed the index, and more than a third trailed by more than 1,000 bps. Post-2010, the percentage of managers outperforming has been significantly lower than during the 2000–10 period. On average, 46% of managers outperformed the fee-adjusted index annually from 2011 to 2020, versus an average of 58% from 2000 to 2010.
By style, the median growth manager bested the MSCI World Index by 1,404 bps. However, the median growth manager underperformed versus the MSCI World Growth Index by 389 bps. Conversely, the median value manager underperformed the headline index by 786 bps, but outpaced the MSCI World Value Index by 920 bps. Growth managers have been in favor recently, and have the strongest returns over three-, five-, and ten-year periods.
Managers’ sector allocations can differ substantially from the index. The four most underweighted sectors in 2020 all underperformed the broader index, providing a positive net allocation effect. However, the top-performing sector—information technology—was broadly underweighted, creating a headwind for manager performance.
US equities hold the largest weight in the MSCI World Index; when MSCI World Index outperforms the MSCI US Index, managers have consistently outperformed, as they tend to be underweight US equities. US equities outperformed the MSCI World Index by 480 bps in 2020, yet managers were more than 1,100 bps underweight to the MSCI US Index, which was a likely driver of relative underperformance. Of the index’s remaining five largest country weights, managers were overweight United Kingdom and France, which both underperformed the MSCI World Index in USD terms.
Out-of-benchmark exposure to emerging markets has historically provided a tailwind to active global equity managers, and in 2020, the MSCI Emerging Markets Index outgained the MSCI World Index by 240 bps. China, where the largest number of managers had exposure and where median exposure was highest, trounced the MSCI World Index in USD terms by 1,351 bps, boosting returns.
Persistence in manager performance is rare, and movement among performance quintiles is fairly common. Of the top-performing quintile of global equity managers in the 2011–15 period, 39% placed in the bottom two quintiles over the subsequent five-year period (2016–20). Similarly, 36% of bottom-performing managers in the initial five-year period were in the top two quintiles in the most recent five-year period.