Stock Pickers Improved in 2017 -- Still Lost to Most Index Funds

(Bloomberg) -- Stock pickers did a lot better last year than in 2016. The bad news is their returns still trailed the majority of their passive peers after fees.

About 43 percent of actively run U.S. stock mutual funds and exchange-traded funds survived and outperformed their average passive peers in 2017, up from 26 percent the prior year, according a report Thursday by Morningstar Inc. covering about 3,600 funds.

The gains were led by managers of small-cap growth and value, foreign-equity and emerging-market funds. The trend went the opposite way in the intermediate-term bond category, where active funds beat passive peers 61 percent of the time, down from 75 percent in 2016.

Despite the short-term improvement, active managers still struggle to beat benchmarks over the longer haul. For both the active and index approaches, fees are a key difference maker, wrote researchers Ben Johnson and Alex Bryan.

“Investors would greatly improve their odds of success by favoring low-cost funds, which succeeded far more often than high-cost funds over the long term,” the authors concluded.

To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net.

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Josh Friedman, Mary Romano

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