In 2017, 30% of active UK all-cap funds outperformed the benchmark, in contrast to 40% of funds in the universe that outperformed over a five-year period.
“What explains this underperformance is the underweight to small-cap UK stocks. After the sterling drop following Brexit managers were underweight those stocks that significantly outperformed,” said Lyxor head of ETF research Marlene Hassine Konqui (pictured).
The FTSE 100 has delivered 29.3% since 24 June 2016, when the UK voted to leave the EU, while the FTSE Small Cap has returned 37.6%, according to FE Analytics. The FTSE 250 has returned 32.5% over that period.
In 2016, active UK all-cap performance was even worse with only 10% beating the benchmark. However, Konqui said this goes against the long-term trend. “Usually UK managers are among the top performing.”
Lyxor analysed 285 funds tracking the FTSE All Share, representing €85bn assets under management (AUM).
Architas investment director Adrian Lowcock said opportunities for UK stock pickers since Brexit have been in value, but ongoing negotiations are keeping a lid on prices.
Lowcock added small-cap stocks were most likely to be sold off in the lead up to the referendum, but have likely benefited from a relief rally as markets recovered quickly on the back of global growth.
The Lyxor analysis was part of its annual analysis of active versus passive funds.
Across all geographies, 47% of active equity funds outperformed in 2017. European and US small-cap funds both delivered strong levels of outperformance at 72% and 57% respectively.
Italian large-cap managers were the top performing with 81% outperforming their benchmark, while China large-cap managers were the worst with only 24% outperforming.
The report, Analysing active & passive fund performance, found 2017 was a strong year for active managers with 44% outperforming their benchmark, compared with 25% over the 10-year period, and 28% outperforming in 2016.
In fixed income, 39% of active managers outperformed in 2017 compared to 32% in 2016.
The report analysed 6,000 European-domiciled funds representing €1.4trn AUM.
