New research from Global X ETFs indicates that less than one per cent of Australian active equity funds have outperformed a “growth at a reasonable price” (GARP) benchmark over the past decade. The study compared the performance of over 900 large-cap and global equity funds against the S&P/ASX 200 GARP Index and the S&P World ex-Australia GARP Index. Global X ETFs is an exchange-traded fund provider, offering a range of investment solutions. They aim to provide investors with access to various markets and investment strategies through their ETF products.
The results showed consistent underperformance across both Australian and global funds when measured against style-appropriate benchmarks. According to Marc Jocum, senior product and investment strategist at Global X ETFs Australia, comparing active funds to a plain broad index doesn’t provide a complete picture, as many funds lean toward factors like growth, quality, or value. He noted that the performance gap widens significantly when tested against a benchmark that reflects their style.
The analysis also revealed that smaller funds, managing less than $100 million, lagged the most. These smaller funds underperformed their GARP benchmark by an average of 6.9 per cent globally and 4.6 per cent in Australia. This highlights the challenges faced by smaller active funds in delivering superior returns compared to a GARP investment strategy.
These findings suggest that investors should carefully consider the benchmarks used to evaluate the performance of active equity funds. Style-specific benchmarks like GARP indices may offer a more accurate assessment of an active fund’s ability to generate alpha.
