Active Managers in Difficult Markets
Add comment March 3rd, 2008
Adam W. Larson, CFA®
Active managers claim they add value during difficult markets by forecasting market events and then by timing the market’s decline or recovery. They argue that “boring” indexed strategies do not have the flexibility to time the market, and therefore will inevitably under-perform.
If that was true, January 2008 was the perfect month for active managers to show off their skills. As conditions in the domestic equity markets worsened, active managers should have been able to shine. The table below shows that this was clearly not the case. The average mutual fund failed to outperform its passive benchmark in January. In fact, the average fund performed significantly worse for most asset classes.
| Average Mutual Funds(Lipper Category) | January 2008 Return | Benchmark | January 2008 Return | Difference |
| Large Cap Core | -6.5% | S&P 500 | -6.0% | -0.5% |
| Multi-Cap Core | -6.5% | Russell 3000 | -6.1% | -0.4% |
| Large Cap Value | -4.9% | Russell 1000 Value | -4.0% | -0.9% |
| Multi-Cap Value | -4.7% | Russell 1000 Value | -4.0% | -0.7% |
| Small Cap Core | -6.8% | Russell 2000 | -6.8% | 0.0% |
| Small Cap Value | -4.7% | Russell 2000 Value | -4.1% | -0.6% |
| Real Estate | -1.3% | DJ Wilshire REIT | -0.5% | -0.8% |
