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Active strategies rebound in Q2 2020
28 July 2020
Each quarter, over 3,400 asset managers report a broad set of information on over 23,400 strategies into eVestment’s database. Using eVestment’s Analytics solution, we can screen and compare these products across the more than 2,000 data points provided. This report is based on reported gross-of-fee performance, primary asset class, portfolio characteristics and preferred benchmarks.
BY PETER LAURELLI, CFA | EVESTMENT GLOBAL HEAD OF RESEARCH

Active investment managers across a variety of asset classes and investment universes rebounded from Q1 losses in Q2 2020. As global markets bounced back, many strategies racked up returns not seen in years despite an economic environment still full of more questions than answers due to the COVID-19 pandemic.

The data below pulls some high points from eVestment’s monthly and quarterly institutional investment performance data and highlights historic quarterly returns, particularly among equity strategies, globally.

Highlights include:

  • The average of all active traditional equity strategies was +21.2% in Q2 2020 and -8.1% YTD. The story of Q2 was about the snap back of returns after the largest average losses produced by traditional equity strategies in over 20 years, since at least Q1 2000.
  • Active US equity strategies produced their largest quarter of positive returns in over 20 years, with average gains over 23%. The rise comes after their largest losses in Q1 (see chart below) and puts average returns of all active US equity strategies in H1 2020 at around -7%.
  • Growth once again dominated value by again by margins not seen in two decades, which was the case across all major regions. In terms of benchmark outperformance, however, within large cap and all cap segments in the US, it is actually value strategies which are outperforming their benchmarks compared to growth (the difference in small cap is negligible).
  • The average return generated from all active, non-cash fixed income strategies globally in Q2 was +7.5% in USD terms, which puts the average YTD 2020 return at +1.1%. Strategies focused on CLO markets were among the best performing in Q2, along with US convertibles and Canadian long duration strategies.

Universe Average Returns

Non USD Dominant Universe Returns in Reported Base Currency Only

All Active Equity Strategies

RegionAsset ClassQ1 2020Q2 2020YTD 2020Currency% Reporting
All Equity StrategiesEquity-24.03%21.19%-8.11%USD86%
All US EquityEquity-24.62%23.21%-6.99%USD91%
All Global EquityEquity-21.98%19.75%-6.63%USD90%
All Emerging Mkts EquityEquity-26.74%21.23%-10.94%USD91%
All Europe EquityEquity-23.65%17.35%-10.40%EUR85%
All Asia Pacific EquityEquity-18.44%19.65%-2.09%USD76%
All EAFE EquityEquity-24.23%17.64%-10.99%USD95%
All ACWI ex-US EquityEquity-23.43%19.86%-8.07%USD95%
All Japan EquityEquity-19.03%14.57%-7.24%JPY84%
All Canadian EquityEquity-22.80%16.61%-10.07%CAD95%
All Australian EquityEquity-24.95%19.74%-10.32%AUD96%
All UK EquityEquity-27.92%13.88%-18.31%GBP85%
All Africa EquityEquity-25.58%19.87%-11.26%ZAR83%

All Active Fixed Income Strategies

RegionAsset ClassQ1 2020Q2 2020YTD 2020Currency% Reporting
All Fixed Income StrategiesFixed Income-5.78%7.47%1.11%USD82%
All US Fixed IncomeFixed Income-2.41%5.77%3.08%USD88%
All Global Fixed IncomeFixed Income-7.54%8.30%-0.04%USD90%
All Emerging Mkts Fixed IncomeFixed Income-14.39%12.60%-3.60%USD91%
All Europe Fixed IncomeFixed Income-7.47%6.69%-1.42%EUR84%
All Canadian Fixed IncomeFixed Income-0.91%7.64%6.59%CAD99%
All UK Fixed IncomeFixed Income-0.85%6.90%5.88%GBP65%
All Asia Pacific Fixed IncomeFixed Income-5.17%6.77%1.07%USD88%
All Africa Fixed IncomeFixed Income-3.27%4.44%1.42%ZAR17%
All Australian Fixed InterestFixed Income0.49%1.84%2.33%AUD93%
All Japan Fixed IncomeFixed Income-0.41%-0.19%-0.57%JPY89%

All Active Balanced Multi-Asset Strategies

RegionAsset ClassQ1 2020Q2 2020YTD 2020Currency% Reporting
All Global Balanced StrategiesGlobal Balanced-16.04%12.69%-5.81%USD77%
All Global Balanced / TAAGlobal Balanced-14.42%10.75%-5.74%USD81%
All US Balanced / TAAGlobal Balanced-13.90%11.62%-3.60%USD81%

Equity Strategies: Historic Differences Continue in Growth over Value

The average of all active traditional equity strategies was +21.2% in Q2 2020 and -8.1% YTD. The story of Q2 was about the snap back of returns after the largest average losses produced by traditional equity strategies in over 20 years, since at least Q1 2000. As a result, the majority of products outperformed their benchmarks in Q2 2020. In EAFE and ACWI ex-US Equity, outperformance YTD was more common, while global and global EM equity strategies have had a more difficult time outperforming their benchmarks. US equity strategies’ outperformance hovers around 50/50 YTD.

All Active Equity Strategies

All Active Equity Strategies

Active US equity strategies produced their largest quarter of positive returns in over 20 years, with average gains over 23%. The rise comes after their largest losses in Q1 (see chart below, left) and puts average returns of all active US equity strategies in H1 2020 at around -7%. The drivers of active US equity performance in Q2 were small cap and growth exposures, while growth strategies across all capitalizations, though primary all cap and large cap, are producing the best YTD returns. For a second consecutive quarter, growth has outperformed value by a margin unmatched in the prior 20 years.

Active US Equity

US Growth Minus Value

The growth vs. value story is not US-centric, and is even magnified in other regional markets. Within active global, EAFE, global EM and ACWI ex-US equity strategies, the median growth strategy’s outperformance of value in Q2 was even wider than Q1 2020, with global EM producing the biggest divergence.

Global Growth Minus Value

EAFE Growth Minus Value

Global Emg Mkts Minus Value

In terms of the drivers of benchmark outperformance, however, it is interesting that within large cap and all cap segments in the US, it is actually value strategies which are outperforming their benchmarks compared to growth (the difference in small cap is negligible). The implication being that the growth vs. value story while simply based on returns is in favor of growth, value managers appear to be adding more value.

Across all active equity primary universes, the Top 5 YTD were all either China or US-focused. Breakdowns by firm size or regional domiciles is also available:

Full comparisons of outperformance vs. benchmarks across all strategies, globally, are available upon request.

RankTop 5 Primary Universes - YTD 2020Avg Return - YTD
1eVestment Onshore China A-Shares Equity11.47%
2eVestment Offshore China Equity10.84%
3eVestment US All Cap Growth Equity10.80%
4eVestment US Large Cap Growth Equity8.78%
5eVestment Greater China Equity6.55%

The dispersion of returns (% point difference between top and bottom decile performers) remained very wide across all broad regional segmentations, illustrating just how much deviation there has been within equity markets, globally, as economies and companies grapple with operating within a global pandemic. The dispersion from within global EM equity strategies was significantly larger than in Q1 2020. Interestingly, global EM strategies were the only major regional segmentation where there is greater dispersions in returns in rebounding markets vs. falling markets.

Active Emerging Mkts Equity

Fixed Income: High Yield and Securitized Strategies Lag

The average return generated from all active, non-cash fixed income strategies globally in Q2 was +7.5% in USD terms, which puts the average YTD 2020 return at +1.1%. Strategies focused on CLO markets were among the best performing in Q2, along with US convertibles and Canadian long duration strategies. The Top 5 universes based on average returns in H1 2020 are:

RankTop 5 Primary Universes - YTD 2020Avg Return - YTDAvg Return - Current Q
1eVestment US Long Duration Fixed Income12.11%8.83%
2eVestment US Government Fixed Income6.81%1.45%
3eVestment US Core Fixed Income6.33%4.45%
4eVestment Canadian Long Duration Fixed Income6.21%17.44%
5eVestment US Taxable Municipal Fixed Income5.26%3.76%

Within US fixed income strategies, while the dispersion of returns were still elevated, though well down from Q2 2020, the average return was behind only the post-financial crisis rebounds in Q2 and Q2 2009 indicating positive performance was relatively widespread in the quarter. Positive returns in the quarter were primarily from within convertibles, CLO, though both are among those with the largest average YTD losses. The top and bottom performing US fixed income strategies are below the two charts:

Active US Fixed Income

Active US Fixed Income

Top 5 Primary Universes - YTD 2020Avg Return - YTD
eVestment US Long Duration Fixed Income12.11%
eVestment US Government Fixed Income6.81%
eVestment US Core Fixed Income6.33%
eVestment US Taxable Municipal Fixed Income5.26%
eVestment US Corporate Fixed Income5.06%
Bottom 5 Primary Universes - YTD 2020Avg Return - YTD
eVestment Preferred Securities-7.81%
eVestment US Floating-Rate Bank Loan Fixed Income-4.93%
eVestment US High Yield Fixed Income-3.91%
eVestment Collateralized Loan Obligation (CLO)-3.68%
eVestment Multi-Asset Credit Fixed Income-3.20%

Within active global fixed income strategies, the story was similar to US-focused strategies both for the quarter and H1 2020; high yield and securitized strategies rebounded most in Q2, but still are among the worst performing fixed income categories for the year. The difference between high yield and core strategies’ median return was significant in Q1, behind only Q4 2008 as the widest in over 20 years, but as high yield rebounded, core strategy returns did as well making the gap between the two in Q2 in favor of HY wide, but not significantly so.

Global High Yield Minus Core

Canadian fixed income markets have produced some of the widest differentials of returns relative to their last 20 years of any major regional segmentation, with the differences in Q2 2020 surpassing even what was seen during the global financial crisis and European sovereign crisis, driven by the returns from long duration and mortgage strategies. While both were positive in Q2, long duration strategies produced an average gain over 12% in Q2.

Active Canada Fixed Income

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