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Just 48% of actively managed U.S. equity funds outperformed their benchmark in the first six months of 2020, according to a Morningstar Inc. report Thursday. Meanwhile, almost 60% of active foreign-stock funds did better than their index-tracking counterparts in that span.
The diverging fortunes are largely due to the narrow breadth of the U.S. equity rebound. While the S&P 500 Index has surged 55% since late March, gains have primarily been driven by the popular group of tech stocks known as the FANGs, which benefited from the “stay-at-home” trade popular amid the coronavirus. U.S. stock pickers had to embrace those companies or lag behind their benchmarks, while foreign-stock gains have been broader, making managers of those funds less dependent on picking just a few outperformers, Morningstar’s Ben Johnson said.
“Especially over past six months within the U.S., the bar has been pretty high for U.S. large-cap funds in particular given the degree of concentration we’ve seen,” Johnson, global director of ETF research, said in an interview.
Facebook (NASDAQ:FB), Amazon.com (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Google (NASDAQ:GOOGL) shares make up almost 12% of the S&P 500 Index. When combined with Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT), the group accounts for about a quarter of the gauge. An index of the tech titans has climbed 79% from March’s lows.
That level of concentration doesn’t exist in overseas equity markets, according to Johnson.
“That’s something you don’t see for the most part outside the U.S.,” Johnson said.
©2020 Bloomberg L.P.
