Active tech, healthcare and ESG funds outpace passives

Actively managed funds have been outpacing passives in hot-ticket equity sectors as investors seek exposure to the economic megatrends that have been accentuated by the Covid-19 crisis.

Active technology, healthcare and ecology funds have been among the winning fund categories in the second quarter, with combined net inflows of €23.5bn ($27.7bn).

Some of the successful fund managers have been able to demonstrate their ability to outperform passive competitors in these sectors through the crisis.

Based on second-quarter net flows, BlackRock is the manager to beat in the technology and healthcare sectors in Europe.

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Its actively managed BGF World Technology and BGF World Healthscience funds captured the largest chunk of net inflows into those two growth sectors in the second quarter.

BlackRock's tech fund delivered a 38.2 per cent return in the second quarter, outperforming most of its active and passive peers, according to Morningstar data.

The Polar Capital Global Technology fund came second in terms of net inflows, with €816m in the second quarter, and delivered a 28 per cent return.

However, not all active managers have been outperforming passives.

Actively managed technology funds had an average return of 27.5 per cent in the second quarter, compared with a 28.1 per cent return for the 44 passive funds.

Some of the best-selling funds suggest that garnering inflows is not just the result of short-term performance.

BlackRock’s healthcare fund returned 11.5 per cent across all share classes over this period and was not a top performer in its sector, but it has a big brand and significant record to draw on.

[Technology and healthcare] are sectors that are fundamentally changing the world and creating tangible stories for managers to engage clients with

The JPM Global Healthcare fund came second in terms of net inflows, with €372m in the second quarter and a return of 14.4 per cent across all share classes.

Benjie Elston, product director at White Marble Marketing, an asset management marketing consultancy, said BlackRock’s “scale and the strength of its [environmental, social and governance] messaging”, in addition to its focus on technology, “creates many of the ingredients for success with investors”.

“Much of the content created around ESG recently has been far more centred on fund performance than we’ve seen historically,” he said.

“Covid-19 has accelerated an emerging story of consistent long-term performance within sustainability.”

Active managers with a clear message and “a story to tell” have been winning significant inflows, experts say.

Chris Chancellor, senior director for global insights at Broadridge, said “changing demand patterns among consumers is something investors are really focused on”, and that this would drive continued growth in thematic funds over the long term.

In addition, it is “imperative” that active managers “differentiate themselves” from competitors’ thematic products, in sectors such as technology and healthcare, Mr Elston said.

Managers need a strong presence in the technology and healthcare sectors because the products are often “at the heart” of a wide range of ESG and sustainable funds, he said.

“These are sectors that are fundamentally changing the world and creating tangible stories for managers to engage clients with.”

Mr Elston said selectors looking for funds that can navigate the uncertain times, “pick and choose the sectors that will benefit from the new reality, and avoid those that will be damaged”.

“The marketing effort must be aligned with the product,” he said.

Mr Chancellor holds a similar view. “Fund managers must be able to deliver a compelling story at point of sale and through the lifetime of investing to show investors that the vision of the future they are painting is coming to fruition,” he said.

Some global large-cap growth funds, the largest equity sector, have also benefited from their focus on particular themes related to aspects such as demographics and social change.

These include Robeco's Global Consumer Trends Equities fund, which had €745m in net inflows in the second quarter, and Baillie Gifford's Positive Change fund, which had net inflows of €336.5m and an average return of 32.7 per cent.

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*This story has been amended since its original publication on the main FT site to correct the net inflow figure for Baillie Gifford’s Positive Change fund