Active managers’ ‘human touch’ crucial for investors

Yasmine Raso

Senior Journalist, Financial Newswire

20 March 2026

As active managers suffer through a period of sustained underperformance and being consistently outshone by their passive counterparts, their stock picking skill and human touch element have been singled out as ‘critical’ when it comes to investment opportunities in private markets.

Off the back of the latest annual active manager scorecard from S&P Dow Jones Indices released earlier this week, Betashares’ Investment Strategist, Hugh Lam, said active managers are facing even tougher competition with the advent of smart beta exchange traded funds (ETFs) that have the ability to capture exposure to stocks with certain ‘factors’ that underpin benchmark outperformance and generate strong returns.

He said these strategies aligning with ‘factors’ such as value, quality and momentum have effectively nullified active managers’ stock picking ‘skill’ and no longer justify paying high management fees, with smart beta providing a more “efficient and transparent” way to “systemically capture these return drivers”.

“Even across all market conditions, where active managers often claim the opportunity to outperform, the reality has remained consistent,” he said.

“A large proportion of active equity managers continue to fall short of their benchmarks, reinforcing how difficult sustained outperformance is in practice.

“Active managers often point to different market environments as being more favourable for stock picking, but the data shows that underperformance is persistent across cycles, even when fees are taken into account.”

According to the S&P Dow Jones Indices data cited by Lam, 70 per cent of actively-managed global equity funds underperformed their benchmark in 2025, with the same to be said for 74 per cent of actively-managed Australian equity funds. Approximately 60 to 96 per cent of active funds underperformed across asset classes over 15 years, with high management fees deemed responsible for eating away at any instance of benchmark outperformance.

However, against this backdrop of underperformance, Lam also noted that the growing divide in Australia’s funds management landscape will allow active managers to play to their selection strengths as investor appetite for niche opportunities in private markets continues on its upward trajectory.

“On one end, low-cost index and smart beta strategies provide scalable, rules-based exposure to markets and factors,” he said.

“On the other, active management continues to play an important role in areas where human touch is critical. Private markets, including private equity, private debt and credit, are good examples where manager skill, access and on-the-ground expertise can still drive meaningful outcomes for investors.”