The latest S&P Dow Jones Indices SPIVA Global Scorecard, published last week, revealed that as markets continue to favor the largest companies, the majority of actively managed funds are struggling to maintain their performance.

Namely, across 56 categories of equity and fixed-income funds analyzed in the six-month period ending in June, the majority of funds underperformed in more than two-thirds of the categories reported. Of the 8,417 unique funds represented in the full half-year statistics, a similar 64 percent of individual funds underperformed their assigned benchmark.

Commenting on the data, Matt Olson, Morningstar’s director of manager research ratings, agreed that the market was challenging for fund managers, particularly amid “extremely divergent results” in both style (value vs. growth) and market cap (large vs. small) approaches .

"That means a bias towards or away from these factors would help or hinder," he told InvestorDaily.

“At Morningstar, we believe this reinforces the need for insightful fund manager research. Our ratings process has proven that over time our higher rated managers outperform our lower rated managers,” said Olsen.

However, he cautioned against drawing conclusions about the performance of fund managers based on their performance over the past six months.

"The long-term results are more compelling and important to look at," he said.

“In-depth analysis of a fund manager's investment process and people is critical to assessing whether they truly have differentiated skills in stock selection and market factor analysis.

“A manager's ability to navigate a dynamic investment market landscape is critical right now. Some managers do it very well.

While acknowledging that this has been a "great period" for big equity growth in the U.S. market, meaning those managers with a value investing philosophy who avoid high-tech PE stocks would suffer, Olsen said it was not means value as a market factor should be completely rejected.

"We are currently in a potentially short- to medium-term environment where markets have factored in peak inflation, with the near-term forecast that interest rates may continue to fall - which they have indeed started to fall in terms of 10-year Treasuries yield over the last 12 months, for example,” Olsen said.

"It was a great environment for stocks to grow as investors factored the likelihood of lower discount rates into their valuations," he said.

However, the perception of growth as a global factor could reverse, Olsen said, especially if the world enters a period of long-term rising interest rates.

"Value as a factor could really recover in the next 10 to 20 years if we see a reversal of the 40-year trend of falling interest rates since the early 1980s." This will make it much harder for growth stocks to outperform, as has happened in periods of long-term falling discount rates,” he said.

"I think active management can certainly add value in the future."

Looking specifically at Australia, Olsen highlighted an "interesting area of ​​strong performance" in banking stocks.

This, he said, could be due to a number of reasons, including a rotation of the resources sector, increased offshore allocations to Australian banks and the strong underlying fundamental performance of domestic banks in terms of margin management and low levels of loan losses.

"A manager's ability to pivot and target that sector or weigh the sector with solid analysis would allow them to beat their peers." Some managers cover certain sectors of the market better than others,” Olsen said.

“I would say that active managers certainly have some good opportunities to outperform if they can get it right. Managerial research can reveal these relative strengths and weaknesses.”