The S&P 500 index is down nearly 20% since January, creating an opportunity for stock pickers to outperform passive investments. But unfortunately, most active fund managers seem to have missed their chance. Morningstar found that only 40% of active funds outperformed their passive peers this year, which is well below their 47% success rate during 2021.
Let’s take a look at some of the best-performing and worst-performing active fund segments over the past year.
See our Active ETFs Channel to learn more about this investment vehicle and its suitability for your portfolio.
Active Small-Cap Funds Outperform
According to a recent report from Morningstar, more than 55% of active small-cap funds outperformed their passive peers over the past year, making them the best-performing segment. While small-cap managers also have a solid long-term track record, the 10-year mortality rate and distribution of annualized excess returns suggest they either beat their passive peers or liquidate their funds.
Not surprisingly, small-cap value funds performed the best in today’s bearish economic environment. Cheaper valuations mean these stocks have less to lose as P/E ratios decline, while many value stocks are in stable industries with predictable cash flows.
| Category | 2022 | 2021 | YoY Change |
| U.S. Small Blend | 60.30% | 44.90% | 0.154 |
| U.S. Small Value | 65.50% | 23.80% | 41.80% |
| U.S. Small Growth | 43.30% | 40.80% | 2.50% |
Top performing small-cap funds include:
| Name | Ticker | Expense Ratio | Assets (AUM) | 1-Year (%) |
| Kinetics Small Cap Opportunities Fund | KSCOX | 1.64% | $455 Million | 37.36% |
| Auer Growth | AUERX | 2.37% | $39.7 Million | 15.42% |
Active Foreign Funds Underperform
Less than one quarter (23%) of foreign stock funds outperformed their passive peers, making it the worst-performing category.
However, some pockets of the market perform better than others. For example, long-term excess returns for surviving active managers were positive for European stocks and emerging market categories. And, as with small-cap stocks, the value segment performed best.
| Category | 2022 | 2021 | YoY Change |
| Foreign Large Blend | 25.00% | 63.60% | -38.60% |
| Foreign Large Value | 27.30% | 52.30% | -25.00% |
| Foreign Small-Mid Blend | 25.90% | 51.70% | -25.80% |
Some outperforming foreign funds include:
| Name | Ticker | Expense Ratio | Assets (AUM) | 1-Year (%) |
| Wasatch Emerging India Investor | WAINX | 1.52% | $514 Million | -18.59% |
| Fidelity Nordic | FNORX | 0.92% | $257 Million | -23.68% |
The Bottom Line
Stock pickers have had a poor track record thus far in 2022, but some corners of the market outperformed others over the past year. For example, active small-cap funds did much better than their passive counterparts, while foreign stock funds fared much worse than usual this year.
Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.
All data as of November 21, 2022
