More active investment managers managed to beat the market in 2017, but they still face a difficult road ahead over the long term, analysts said.
Over a 12-month period ended June 30, 43.44% of large-cap funds outperformed the S&P 500. While more than half of the funds, which include the mutual funds and similar vehicles many Americans use for retirement and 401(k) accounts, did worse than the market average, the percentage of funds that did better was much higher than in the previous 12-month period, when 34% outperformed.

For years, the higher fees charged by such funds, coupled with their inability to outperform exchange-traded funds that simply track the rise and fall of the wider market, have driven retail and institutional investors to passive strategies. The trend has also held true for mid- and small-cap funds, which have seen similar underperformance when compared with indexes.
"Active certainly has done better here in 2017, but it really hasn't translated into a 'stopping the bleeding' perspective of the shift to passive right now," Barclays equity analyst Jeremy Campbell said in an interview. The active-to-passive narrative could change “a little bit” if managers replicate their performance in 2018, Campbell said.
Over a longer period of time, only a sliver of active managers have been able to beat the market. Over a 15-year period ending Dec. 31, 2016, 7.85% of large-cap funds did better than the S&P 500, according to data from the S&P SPIVA U.S. Mid-Year Scorecard.
Against that backdrop, active management’s performance in 2017 has given the management of at least one asset manager hope for a turnaround.
During Sun Life Financial Inc.’s third-quarter earnings call, president and CEO Dean Connor said he believes a turnaround is coming for active managers. In that quarter, the company’s asset management business saw overall net outflows. But Connor pointed to the improvement in investment performance across the space as an indicator of a return to inflows.
“Performance has improved, [and] historically, flows follow performance,” he said.
Campbell and Gabelli & Co. research analyst Macrae Sykes noted that while passive management will continue to be a popular alternative, there will also be some space in the market for active management.
BlackRock Inc., the largest asset manager in the world thanks in large part to its massive iShares ETF business, has found that some portfolios need more active management than others.
The company’s U.S. large-cap growth assets are passively managed, but its Asia equity portfolio is being actively managed, BlackRock President Robert Kapito said during a Dec. 5 investor presentation.
Kapito dismissed the notion that active management is staging a comeback at the expense of passive. Rather, firms will learn to use both, he said.
"Active is never going anywhere; it's been there," Kapito said. "Yes, people have seen some flows come down, but the next leg of this is going to be using it as part of an overall portfolio. You're going to need both."
