The funds analyzed by SCM in the UK All Companies sector typically had just 53% invested in the largest UK companies which represent 70% by value of the UK stock market. They typically invested 47% of their funds in smaller or medium sized companies that together represent 30% of the UK stock market by value.
The overall performance of the actively managed funds in the £168bn UK All Companies sector, was found by SCM to closely follow an investment of 55% in a FTSE 100 tracker, and 45% in a FTSE 250 tracker over the five years to the end June 2015.
SCM also found that 85% of outperformance by UK equity income funds over the last five years was due to the same inherent size bias. These funds had just 59% invested in the largest UK companies which represent 70% of the stock market by value. They typically invested 41% of their funds in smaller or medium sized companies.
Only 4 of the 179 funds analysed by SCM beat the market five years running, once adjusted for the inherent size bias of each fund.
‘Our research is yet another nail in the coffin of the majority of active funds,” said Gina Miller, co-founder of SCM Direct. “Simply buying a combination of a FTSE 100 tracker with a FTSE 250 tracker, closely resembles the performance of a typical actively managed UK equities fund, whilst saving over 80% of the annual cost. Following the outperformance of small and mid-cap stocks, many of these stocks now command a premium valuation, compared to their larger peers. This may negatively impact the future returns of many active funds in these two major sectors,” she added.
