Lyxor research reveals active fixed income managers beat the benchmark in first half of 2021

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Active fixed income managers made the most of volatile first half of 2021, with the bulk beating benchmarks, while equity managers had a more challenging period according to Lyxor Asset Management.

Some 57 per cent of fixed income managers exceeded their benchmarks in H1 2021, while 47 per cent of equity managers outperformed in a more challenging period, the firm says. UK and Europe Small Cap came out on top amid greater divergence in equity managers’ performance, and fixed income managers successfully navigated a rollercoaster first half amid inflation fears and growth concerns.

The firm writes that most active fixed income fund managers beat their benchmarks across most asset classes in the first half of 2021, making the most of a volatile market environment in which hopes of a strong global recovery and reflation were shaken by mounting uncertainties related to the rapid spread of the Delta variant and central banks’ response to rising inflation.

However, it was hard for equity fund managers to keep up with the pace of the equity market rally, especially for Large Cap managers.
According to the study released today by the Lyxor ETF Research and Solutions team, which looks at the performance of 13,800 EU-domiciled active funds (representing EUR2.7 trillion of assets) relative to their benchmarks, 57 per cent of Fixed Income and 47 per cent of Equity active fund managers on average surpassed their benchmarks in the first half, with significant dispersion across asset classes. 

The firm writes that while 2021 got off to a strong start for equity fund managers, buoyed by the mass roll-out of vaccination campaigns especially in the US and the UK, their performance showed greater dispersion compared to last year. Those taking a more risk-on approach and with exposure to the value and cyclical stocks poised to benefit the most from the global recovery came out on top. 

These included UK and Europe Small Caps (with 96 per cent and 61 per cent of them respectively outperforming their benchmarks), while China equity managers (73 per cent) rode out robust domestic demand, allowing them to ward off Chinese markets’ turmoil at the start of the year. In contrast, Global (34 per cent) and European Large Cap managers (39 per cent) lagged as they struggled to capture the equity rally due to insufficient exposure to European stocks on one hand, which suffered relatively less from tapering anxieties, and to value names on the other.

Fixed Income managers had a strong showing in H1 overall (with 57 per cent overperforming their benchmarks vs. 40 per cent in 2020) as they successfully navigated a complex and contrasted environment, amid fears of runaway inflation pushing bond yields higher across the board in Q1. 

In Q2, the moderating traction of US economic activity eased Fed tapering concerns, giving US Treasuries some respite, whereas Euro yields crept higher, driven by economic reopening and rising vaccination rates. In this context, Fixed Income managers who took an underweight stance on short duration did well, with Sovereign, Investment Grade and Aggregate managers thriving on both sides of the Atlantic and outperforming benchmarks. At the other end of the spectrum, High Yield (overly cautious in Q1) and Emerging Markets debt (overly cautious in Q2) slightly underperformed over the period.

Vincent Denoiseux, Head of ETF Research and Solutions at Lyxor Asset Management, says: “Whilst most of the Equity active managers have been able to mitigate market shocks in 2020, it proved more challenging to keep up with such a fast and consistent rally in the first half of the year. Dynamic management of sector and style allocation was key to outperforming in this challenging environment. On the Fixed Income front, H1 has been a strong period, with agile duration management as a crucial performance driver”.

Jean-Baptiste Berthon, Senior Cross-Asset Strategist at Lyxor Asset Management, says: “A majority of active fund managers succeeded in navigating headwinds related to hiccups in the vaccination roll-out as well as uncertainties fueled by surging inflation and tapering concerns. Going forward, the withdrawal of monetary and fiscal stimulus, changing trading conditions as economies gradually return to normal, and rising valuations will present both challenges and opportunities for active managers”.

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