Portfolio managers who promise expertise in actively selecting shares have long been accused of failing to beat the performance of cheaper funds that track an index, but a new study argues that some stockpickers do add value.

According to academic research seen by FTfm, actively managed global equity funds outperformed the market by between 1.2 per cent and 1.4 per cent annually on average between 2002 and 2012.

The findings are likely to provide comfort for some active fund managers who have come under repeated attack from academics, campaigners and research providers for underperforming their benchmarks.

Earlier this year, research by S&P Dow Jones, the index provider, found that 99 per cent of actively managed US equity funds sold in Europe failed to beat the S&P 500 over the past 10 years.

However, the authors of the latest research, which will be published online today, argued that in specific circumstances active management can pay off.

They wrote: “Our results suggest that active management is worth considering in global equity markets.”

The research did not subtract the fees investors are charged from the performance figures, but it said pension funds and other big investors typically pay fees of around 0.75 per cent. This would leave those investors with a net gain of at least 0.45 per cent annually over 10 years.

Retail investors often pay higher fees.

David Gallagher, lead author of the study and a professor at the Australia Business School at the University of New South Wales, said the study shows active equity funds that invest globally “generate an economically significant outperformance”.

According to the study, the excess returns of global equity funds primarily came from managers’ stock selection skills, while allocations to emerging markets also helped boost performance.

Professor David Blake, director of the Pensions Institute at London’s Cass Business School, said he was “a little surprised by the results, in particular the size of the outperformance”, but he cautioned that the study could be prone to so-called selection bias — where only good funds report their performance.

Prof Gallagher’s study, which was co-written by Graham Harman, Camille Schmidt and Geoffrey Warren, included 143 global equity funds that were managed for institutional investors. The funds were assigned a benchmark of either the MSCI World index or the MSCI All Country World index.

Tim Edwards, senior director of index investment strategy at S&P Global, said: “If you have the ability to pick a skilful manager and they are going to charge you a low fee, then that is clearly a better option.

“But there are two big challenges. In most markets the average manager is not enough. Most of the time you have to have a good one and it is often really hard to find a good manager. You also need to have a low fee for this to work. You can’t ignore fees.”

S&P’s research found that few global equity funds available for retail investors outperform the market after fees.

The index provider’s research, as well as numerous academic studies, have heaped pressure on active managers and driven the rapid growth of the passive fund industry, which can provide lower-cost exposure to markets, in recent years.

Figures from Morningstar, the data provider, showed that, in the nine months to the end of September, investors put $35bn into passive equity funds that invest globally but pulled almost $20bn from actively managed equivalents.

Stephen Mitchell, head of strategy for global equities at Jupiter, the UK-listed fund manager, agreed investors benefit from active stock picking when it comes to global equity funds.

“Active management has had a relatively bad press. But we still believe that stock picking is key to active management and it will add value,” he said.



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