While we have advised a gradual approach to investing in China, today we believe that investors should take a systematic and comprehensive approach, overweighting Chinese assets relative to their index weights. Looking past the uncertainty and negativity, investors will find a large investment opportunity set, a robust universe of public and private managers, and appealing public equity valuations.
In 2018, 52% of active global managers underperformed the MSCI World Index gross of fees, with the median manager underperforming by 20 basis points. This marked a reversal from active managers’ strong outperformance in 2017. This is a companion piece to the US and global ex US equity manager performance chart books already published.
In over 40 different analyses and 100 charts, our annual report on the history of global markets provides context for the range of returns investors can expect from equities, bonds, and cash; reveals the importance of various components of equity returns; examines the evidence for equity mean reversion; and reviews the relationship between initial valuations and subsequent returns for equities and bonds. Given the stage of the economic cycle and a shifting paradigm in central bank policy, we incorporate a current market environment section this year. The appendix to this report shows year-by-year, cumulative, and average annual compound returns for as much as 119 years of market data for Australia, Japan, the UK, and the US. Emerging markets equity returns are also included in the appendix—with 30 years of history—in USD and local currency terms.
In 2018, 62.1% of active global ex US managers underperformed the MSCI EAFE Index gross of fees, with the median manager underperforming by 123 basis points. Since 2000, the median manager has now underperformed the index in just three calendar years, and 2018 marks the first year of underperformance since 2004. This is a companion piece to the US manager performance chart book already published.
For the fifth straight year, the majority of active mid- to large-cap managers underperformed in 2018, with 61.1% underperforming (gross of fees) in 2018. The median manager underperformed the Russell 1000® Index by 136 basis points for the year. This chart book is our annual summary of the absolute and relative performance of managers that report to our database.
Geopolitical tensions and growth concerns loom large over the global economy, but we don’t think investors should fixate on the recent slowdown in near-term earnings expectations.
This chart book presents representative long-only and hedge fund manager performance for fourth quarter 2018. The median US Core Bonds manager posted the highest median return for fourth quarter 2018, returning 1.4%. The median Cash Management manager posted the best returns for the one-year period ending December 31, 2018, with a return of 2.0%. The median US Small-Cap Growth Equity manager posted the lowest median return for fourth quarter 2018 (-20.4%). The median Global ex US Small-Cap manager suffered the worst performance (-19.1%) for the one-year period.
Myriad rising risks weighed on performance in 2018, leaving investors few places to hide among the sea of red.
Last month’s sell-off was mainly a reaction to macroeconomic headwinds that have been building this year; recent and expected corporate earnings growth has not weakened much. A handful of earnings disappointments by highly valued and high-profile tech firms have spurred vicious sell-offs, but these have been outliers. Building macro concerns and a few downbeat earnings calls translated…
This chart book presents representative long-only and hedge fund manager performance for third quarter 2018.