A passive fund is currently the best performer of the entire Investment Association universe over 2021 so far, Trustnet research has found, while several others are beating most active managers in their sector. 
In May, we looked at how the number of active equity funds outperforming their average passive rival has slumped in 2021, following strong performance from active managers in 2020.
In this research, we have focused on the index trackers – the numbers of which have recently been bolstered by the addition of exchange-traded funds (ETFs) to the Investment Association sectors – that have made some of the highest returns of their respective peer group over the year to date.
Concentrating on the equity sectors, the below chart shows the average return of the active and passive funds in each of the 17 peer groups we examined.
Average performance of active and passive equity funds in 2021 YTD
Source: FinXL
At first glance, there doesn’t seem to be much difference in the average performance of active and passive funds across these sectors. Of course, this is down to out- and under-performing outliers essentially cancelling each other out.
There are a handful where there is a large gap – such as IA UK Smaller Companies in favour of active or IA US Smaller Companies in favour of passive. This is explained by there only being a very small number of trackers in the peer group and the results being skewed because of this.
But moving away from average returns and looking at the equity trackers that have made top-decile returns over the period in question and some passives have risen far above their active rivals.
Now, given the nature of an index tracker, we should expect their performance to be roughly in line with the market. Because of this, around 60 per cent of equity trackers are currently sitting in the fourth, fifth, sixth or seventh deciles of their peer group.
But more are in the top three deciles than are in the bottom three – 23.28 per cent versus 18.68 per cent – indicating how passives appear to be edging ahead of active funds this year.
Narrowing it down to those equity trackers that are in the top decile over 2021 so gives us just 20 funds – all of which are ETFs and all of which can be seen in the following table (which is ranked by total return).
Source: FinXL
At the top of the table is iShares Oil & Gas Exploration & Production UCITS ETF with its total return of 52.3 per cent. Not only is this the highest return of the competitive IA Global sector, but it’s the highest of the entire Investment Association universe.
The ETF is intended to offer exposure to broad range of global companies involved in the exploration and production of oil & gas, with top holdings including the likes of ConocoPhillips, EOG Resources and Canadian Natural Resources.
Energy stocks have rallied hard in 2021, as commodity prices rose and investors flocked to these companies as key beneficiaries of the re-opening from coronavirus lockdowns. This is reflected in trackers like iShares S&P 500 Energy Sector UCITS ETF, Xtrackers MSCI USA Energy UCITS ETF and Xtrackers MSCI World Energy UCITS ETF also appearing among the top-decile funds listed above.
However, it’s worth keeping mind that energy stocks can be volatile and aren’t always at the top of the performance tables.
Indeed, of the 10 full calendar years prior to 2021, iShares Oil & Gas Exploration & Production UCITS ETF would have only been in IA Global’s top decile on one other occasion (in 2016) while it would have been in the bottom decile in all nine of the remaining years.
Along with energy, ETFs tracking financials companies are well represented on the list thanks to Xtrackers MSCI USA Financials UCITS ETF, iShares S&P 500 Financials Sector UCITS ETF and Xtrackers MSCI World Financials UCITS ETF.
Financials, and especially banks, are also seen as stocks that tend to outperform when the economy is strengthening and it looks more likely that central banks will lift interest rates rather than lower – as appears to be the case at moment.
Many of the other ETFS on the above table focus on a specific area of the market, such as logistics, agribusiness or clean water. This explains why they have managed to outperform most of their active rivals, which tend to take a more diversified approach and benefit less when one particular area of the market is performing especially strongly.
Source: FinXL
Widening things out a little bit, the table above shows the index trackers making second-decile returns in 2021 to date. There are 21 achieving this.
While several specialist mandates can be seen (such as ETFs focusing on the battery value chain and gender equality), there’s a greater presence of ‘core’ strategies – especially those that invest in European equities.