Actively managed mutual funds have generally lagged passive index funds in recent years.
Such an outcome is not uncommon several years into a bull market. Many active managers focus on companies with higher quality characteristics, including strong balance sheets and a history of generating earnings. However, a bull market can be like a rising tide that lifts all boats, not distinguishing between high quality and low quality companies. Low quality companies including those with no earnings often outperform when risk is not top of mind for many market participants.
During a bear market, it is common for active managers to outperform as lower quality companies may experience the sharpest declines (chart).
As we approach the seventh year of this bull market, we believe investors should maintain exposure to actively managed mutual funds that have demonstrated a history of success across market cycles.