UK - Net of fees active managers underperformed in bonds, property and all equity markets except emerging markets in 2006, according to the Mellon CAPS pooled pension fund survey. 

Over the last ten years, well developed markets like UK equity, overseas equity and North American equity underperformed by 0.6%, 1.5% and 2.4% respectively.

"Gross of fees, however, UK equity active managers would have beaten the index by 0.2% per annum," said Daniel Hall, publications and statistics manager at Mellon Analytical Solutions (MAS).

"It is all about the fees," Alan Wilcock, director of global products at MAS, told IPE.
He added that "in well developed markets it is hard for anybody to beat indices like the All-Share."

"Not all footballers will win the Premiership and not all fund managers will beat the index, so you have to select," Charles Farquharson, head of distribution at Insight Investment Management, commented on the survey findings.

"Admittedly, it is harder to generate performance in well-developed markets, depending on the benchmark. But whether active managers' performance is better or worse in relation to the index, passive funds get a free ride," Farquharson told IPE.

Over the last ten years asset value in index tracking funds rose from £28.3bn (€43.2bn) in 1996 to £237.5bn in 2006, and now account for over half of the assets surveyed.

The markets where UK active managers struggled most last year were Japanese equities with an index return of -7.4% and a median return of -10.8%; property - by far the best performing asset class over the last decade - with an index return of 20% and median return of 16.7%; and North American equity: index: 1.7%; median manager: 0.0%. Index return for emerging market equities was 15.9%; median return 17.2%.
For 2006 the average balanced fund return was 11% and 7% p.a. over a 10-year period. However, Mellon found that the trend away from balanced to specialised funds continued with the asset value in balanced decreasing from £36.3bn in 1996 to £26.7bn in 2006.