Continue to site >
Trending ETFs

Active Small-Cap Outperforms, Foreign Funds Underperform

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.


Top performing small-cap funds include:

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.


Some outperforming foreign funds include:

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

author avatar
Nov 25, 2022