Much has been made of the 'Trump bump', which has been seen as a major factor in propelling markets to all-time highs. Indeed, in absolute terms it has been a great run in almost every market you care to think of.
But what has happened to active management since Donald Trump arrived in the White House? Was this the shake-up that portfolio managers have been waiting for, or has it been another leg of the bull market that, on average, they have failed to keep pace with?
I’ve taken a look at the average information ratios delivered by the 6,000 US managers that Citywire tracks over the six months from the end of November 2016 to the end of May, intentionally avoiding the noise around the election itself.
The results are quite surprising. Of the 122 categories in our US data set, the average information ratios of managers was positive in a total of 86. That means that in roughly 70% of those categories, managers are beating their chosen market on average over those six months. Needless to say, that’s a lot higher than we have typically seen over the past few years, with just 27% of managers globally outperforming over the three years to the end of 2016.
Information ratios are best viewed over much longer time frames, as they have the capacity to throw up odd results over the short-term, but these results undoubtedly show where outperformance is being achieved.
Core Plus Bond funds, for example, have been flying off the shelves. On average, managers in this sector have outperformed their indices by 2.2% for every unit of additional risk they have taken away from the benchmark. That’s more than in any of the other 121 sectors.
Their less exciting cousins in the Core Bond sector have also outperformed handsomely over that period. In fact, fixed income peer groups dominate the top 10, with Emerging Market Debt sectors and both hard and local currency coming out strongly – a reward for investors who have been upping their allocations this year.
Emerging Market Equities have also been an extremely popular trade and it’s good to see that on average managers have outperformed here, albeit by a more modest 0.3% for each additional unit of risk.
Risk and reward?
But what of domestic equities? Would you believe it, there is good news here too! Of the 13 US equity sectors, the average sector manager ratio is positive in 11. Only managers in multi-cap value and mid-cap value failed to deliver positive alpha on average. Given that value has underperformed growth, that speaks to a wider trend in these numbers. Active managers have outperformed most in those sectors with favorable tailwinds.
However, the reverse of this is also true. Natural resources managers have had another difficult run, especially those who go down the market cap spectrum. This also speaks to risk-taking in active management, something that many investors have clamored for but which can count against them when the tide turns.