The sectors where active funds beat passives

The ongoing Neil Woodford saga has once again thrown the spotlight on active management. Advocates of passive investing have claimed it is yet more evidence that actively managed funds are at best expensive closet tracker funds but are usually just expensive funds that underperform the market over the longer term. They also claim that the few fund managers that do manage to outperform do so by pure luck. But as I concluded in a recent weekly newsletter it is more nuanced than that:

Investment managers claim it’s skill when they outperform but proclaim bad luck when they don’t. The truth is they are the architects of their own rise and fall via their stubborn adherence to their own investment biases. Where luck plays a significant role is in whether the investment backdrop favours that bias, such as investing in smaller companies. Since May 2017 the investment backdrop has been less kind to smaller company stocks.