Fund managers get new respect in 2018

Actively managed funds are gaining traction after being overshadowed by index funds. So far this year, investors have opted for relatively cheap index funds that follow benchmarks, while shunning portfolio managers who struggle to beat average returns in the market.

Average returns for active funds stood at 19.1 percent over the past three years as of Dec. 21, compared to returns on index funds, which were at 39 percent.

The return ratio between active and index funds, however, has narrowed, and recently, active funds have surpassed index funds. The return on active funds registered -0.4 percent between Dec. 14 and Dec. 21 compared to the -0.6 percent return for index-based funds.

Major local technology stocks that influence major indexes are expected to not perform as well next year as they did this year.

Investors already got the warning sign as top market cap players Samsung Electronics and SK Hynix have seen their shares fall.

Shares of Samsung Electronics went down 9.8 percent while those of SK Hynix lost 6.7 percent from the end of last month to Dec. 22. Those tumbles affected the entire IT sector, which fell 8 percent on average.

Market analysts say this year’s record profits, driven by unprecedented global demand, will not reoccur next year. With downbeat expectations, actively managed funds that typically charge higher fees and focus on smaller stocks are gaining popularity.

“When large-cap stocks led the market, active funds can’t beat index funds,” said Cho Yoon-nam, an executive director at Daishin Asset Management.

“The performance of the top players will determine the fate of active funds,” he said.

This means when small-cap stocks flourish, actively managed products tend to fare well.

When bio and food and beverage companies enjoyed stellar performances in 2014 through 2015, active funds also delivered handsome returns.

The Moon Jae-in administration’s push to support small and medium enterprises will also likely boost the prices of smaller stocks.

“The focus of next year is that great earnings will reverberate across sectors,” said Oh On-soo at KB Securities.

“If the pace is fast enough, active funds will flourish again,” he continued. “The materials segment is expected to receive a boost, so funds that hold related stocks can be a good option.”

Besides the materials industry, analysts forecast that utilities will see good net profits.

But other analysts struck a more cautious note because small cap stocks such as food and retail companies are vulnerable to geopolitical tensions with China.

Although tensions over the deployment of a U.S. led antimissile shield have been eased somewhat, analysts are unclear whether restrictions on Chinese imports have been lifted altogether.

BY LEE SAENURI, PARK EUN-JEE [park.eunjee@joongang.co.kr]