Yes, it’s been a tough year for active managers

New analysis from Frontier Advisors has confirmed just how tough times have been for active managers, noting that median manager underperformed the S&P/ASX 300 for the first financial year since 2019.

The Frontier analysis said that the Australian equity market mirrored the global trend, with active managers facing a tough year.

“The median manager in Frontier’s Australian Equity Peer Set underperformed the S&P/ASX 300, marking the first financial year of underperformance since 2019,” it said. “Despite a more promising second half of the year, the damage done in the first half proved too significant to overcome.”

It said growth managers in Australia had a somewhat better year compared to their value counterparts, outperforming the S&P/ASX 300 by 2.2% benefiting from an improved performance in the second half of the year.

“Conversely, value managers, who faced a challenging first half, saw some recovery in the latter part of the year but still ended up underperforming by 4.7%,” the Frontier analysis said.

It said the 2024 financial year was particularly arduous for active managers in both global and Australian equity markets.

“The severe underperformance in the June quarter resulted in the worst quarterly excess return for global managers in over a decade. However, quantitative managers emerged as a bright spot, thanks to their effective risk controls. Australian managers also faced difficulties, with the big four banks’ dominance leading to significant underperformance for the median manager.”

“This year serves as a reminder of the cyclical nature of active management. It emphasises the importance of assessing performance not just through traditional style biases but also by considering factors like market breadth, sector leadership, and size impacts, all of which can significantly influence benchmark-relative outcomes,” the Frontier analysis said.