Active Managers Tend to Perform Better in Smaller and Less-Efficient Markets
Success rate is defined as the percentage of months when active strategies outperform passive strategies.
Source: Wells Fargo Investment Institute, Morningstar Direct. Period of study is from January 31, 1987, to December 31, 2016, using monthly data.
Past performance is no guarantee of future results.
The Best Environment for Active
The macroeconomic environment appears to be improving for active management. Based on Wells Fargo Investment Institute analysis, active strategies have outperformed passive strategies in the latter stages of the past three U.S. economic cycles. Current trends, including higher interest rates, greater asset price dispersion, and increased volatility, can be signs of a maturing economic cycle.
The success of an active approach often depends on the size and efficiency of the market. Investors could benefit from focusing their active approach on asset classes in which active strategies typically have an edge (see chart).