FindingJul 13, 2020

Active Mutual Funds Underperform Passive Benchmarks During the COVID-19 Crisis

Lubos Pastor, M. Blair Vorsatz
74% of active equity mutual funds underperform the S&P 500, and 58% of funds underperform their style benchmarks, in the ten weeks after the February 2020 market peak.

Despite rich investment opportunities presented by market dislocations, most US active equity mutual funds underperform passive benchmarks between February 20 and April 30, 2020. The average fund underperforms the S&P 500 index by 5.6% during the ten-week period (29% annualized). The average underperformance relative to the style benchmark is 2.1% (11% annualized). Eighty percent of funds have negative CAPM alphas, and average fund alphas computed relative to five different factor models are all negative. These results undermine the popular hypothesis that active funds make up for their disappointing unconditional performance by performing well in recessions.