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Money Management

S&P: 2017 was great year for active management

2017 was a great year for active equity managers, said a new report by S&P Dow Jones Indices released Tuesday.

S&P's annual SPIVA Institutional Scorecard revealed that in 2017, active institutional asset managers in 11 out of 17 categories outperformed their benchmarks before fees. However, for the 10 years ended Dec. 31, 2017, that number falls to 7 out of 17.

"We saw that active managers have done better in recent periods," said Aye M. Soe, managing director, global research and design. "They've been able to pick the right securities and weight them correctly as well."

Ms. Soe noted that large-cap value equity was also a standout in 2017, with almost 87% of active managers in this category outperforming the benchmark on a gross-of-fees basis over the past 10 years. Similarly, about 75% of large-cap value institutional accounts outperformed the benchmark in the 10-year period using net-of-fees returns.

The report also showed that institutional managers performed significantly better than mutual fund or retail managers. Over the 10 years ended Dec. 31, 2017, nearly 87% of all domestic mutual funds underperformed their benchmarks net of fees, vs. 58% of institutional separate accounts.

"It's a bit difficult to pinpoint exactly what may be the driving factor, but we do think that institutional managers probably have more flexibility than (Investment Company Act of 1940) managers whose records are public," Ms. Soe said.

With institutional separate accounts, fees make all the difference between underperforming and outperforming the benchmark. According to the report, only 38% of all domestic institutional managers underperformed in the 10-year period through Dec. 31, 2017, before fees. But once fees are included, that number rises to 58%.