Active Managers Outperform in Rough October

Amid a volatile October for the major averages, active managers seemed to have found their footing. According to Bank of America, 68% of large-cap active managers outperformed the benchmark, marking a positive month for stock pickers. While allocations to active strategies have shrunk, the beat rate for the year-to-date still remains ahead of the average.

Despite the market turbulence, large-cap active managers displayed impressive performance in October. With 68% of managers beating the benchmark, the average large-cap active fund only suffered a loss of 1.9% compared to the benchmark’s 2.5% loss. This positive result brings the year-to-date beat rate to 41%, surpassing the 38% average.

Interestingly, investors have been scaling back their allocations to active funds, which now represent only 47% of total assets under management. Bank of America’s equity and quant strategist, Savita Subramanian, suggests that this reduction may be a result of managers adopting a more cautious approach and “benchmark hugging” as conviction over the market direction wanes. Nevertheless, active managers have demonstrated their ability to generate alpha in challenging market conditions.

Not only did large-cap active managers outperform, but value and core managers also had strong months. Value managers boasted an impressive beat rate of 84%, while core managers achieved 80%. This further highlights the resilience of active management strategies in the face of market volatility.

In the realm of real estate, mortgage interest rates experienced a significant decline. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances fell from 7.86% to 7.61% in one week, marking the largest one-week decline in over a year. This reduction in interest rates contributed to a 2.5% increase in total mortgage application volume compared to the previous year.

The energy complex has suffered throughout the day, with December RBOB gasoline futures hitting a low of $2.1220 per gallon, the lowest since December 2022. Crude oil prices also experienced a downward trend, with December West Texas Intermediate contracts and January Brent contracts reaching their weakest levels since July 20. As a result, the S&P 500 Energy Index has been one of the worst-performing sectors in the market, declining 0.9% on Wednesday and nearly 9% in the fourth quarter.

Despite the challenges presented in October, active managers have proven their ability to outperform the benchmark. However, investors have become more cautious, leading to reduced allocations to active funds. In addition to the stock market, the real estate and energy sectors have also experienced notable shifts. As the market continues to evolve, it will be interesting to see how active managers adapt and navigate these changing conditions.


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