Data from Lipper, a provider of mutual fund information, fund ratings and fund analytical tools showed that between 2008 and 2012 active global equity funds saw net outflows of US$825 billion.
In the past five quarters to March 2014, however, net flows into active global equity funds rose to US$264 billion, which was above the level of funds flowing into ETFs, said Fidelity.
Fidelity Global Equities Fund portfolio manager Amit Lodha said there have been a number of developments that are expected to enhance the ability of active managers to outperform in coming years, which he believes is the reason for the strong inflows.
“The first is that macro factors and risk-on, risk-off dynamics are playing less of a role in share markets,” said Mr Lodha.
“A calming of the European sovereign debt crisis and an improved US economy are underpinning the global economic outlook and reducing volatility.”
He also said the correlations between different stocks within indexes are also declining, which will allow a good active manager to perform well.
“The third development helping active mangers is the increased contribution of stock-specific-return drivers in total returns,” said Mr Lodha.
“The percentage of global stock variation explained by company-specific factors averaged 82 per cent in the first two months of 2014, significantly higher than the 72 per cent monthly average in 2011 and 2012.”
He also said there is a greater number of factors driving stock returns and that there will be a likely pick-up in return dispersion from below-average levels.
“Stock-level dispersion, which is defined as the cross-sectional standard deviation of returns and which measures the tendency of stock returns within a market to diverge from each other, is just above 10 per cent now, well below its average since 1995 of above 15 per cent,” he said.
“If dispersion between stock returns increases, then logically this should increase the potential for stock-pickers to outperform.”
