Passive UCITS outperformed their active counterparts over the last decade but not in all equity sectors, according to analysis from the European Fund and Asset Management Association (EFAMA).
Between 2014 and 2023, EFAMA’s figures found that passive equity UCITS returned 8.3% per annum on average, comfortably outpacing active equity UCITS, which delivered just 7.0%.
Sector-specific results, however, indicate that some industries lend themselves to active approaches more than others.
For example, passive reigned in the technology and healthcare sectors over the period, with passively managed funds averaging returns of 13.4% and 10.0%, respectively, outpacing their active peers at just 12.7% and 8.5%.
But it was a different story in the energy and financial sectors.
In energy, actively managed funds returned 1.1% per annum over the decade—well ahead of passive returns which were negative. Active financials funds, meanwhile, booked annual gains of 7.0% in the 10 years to 2023. Their passive counterparts, in contrast, mustered just 4.3%.
The Sharpe ratio, a measure of risk-adjusted returns, paints the same picture. The technology and healthcare sectors favored a passive approach, while energy and financial favored active.
Vera Jotkanovic, senior economist at EFAMA, said, “Our analysis reveals significant differences in the average net performance of sectoral equity funds, with neither passive nor active funds consistently outperforming the other.”
Based on the analysis, fund selectors should exercise discretion when deciding between active and passive approaches for different industries.
In the U.S., meanwhile, there are nearly 1,600 active management ETFs traded on the markets, with total assets under management of $754.34 billion and an average expense ratio of 0.71%. Asset classes include fixed income, equity, and commodities, and the largest active management ETFs are the JPMorgan Equity Premium Income ETF (JEPI) and the Dimensional U.S. Core Equity 2 ETF (DFAC).
This article was originally published on our sister site, etfstream.com.
