Active Global Emerging Markets Fund returns fell by 1.36 per cent short of indexes, while Asia funds were 1.04 per cent below passive peers, the worst underperformance since Q3 2018.

The problem for most active investors is they underweighted China, even for active fund managers with aggressive growth strategies, the research found.

“The outperformance of China was costly for active managers, who have been increasing underweight bets over the last 18 months,” said Steven Holden, CEO of Copley Fund Research Global.

Emerging Markets and Asia Ex-Japan Funds were all close to record underweight in Chinese equities going into the crisis.

Since the start of 2020, aggressive growth strategies, in which investors buy stocks with higher valuations and growth expectations, have outperformed value portfolios by the most since 2017, Copley’s data showed.

While all investment categories are deep in the red, aggressive growth strategies outperformed those favouring cheaper stocks by 14.3 per cent in the US funds category, 9.62 per cent for global funds and 4.5 per cent for emerging market active funds

“Active strategies focused on aggressive growth stocks are performing well in the downturn. No one could have anticipated the scale of this market rout, and yet these strategies are adding relative performance despite the overall ugliness of the market,” Mr Holden continued.

The research also showed that active managers underweighted US tech giants, with Microsoft, Apple and Amazon accounting for nearly 15 per cent of the growth for the S&P 500, which contributed to 0.51 of a percentage point of the underperformance for active US and 0.31 of a percentage point for global funds.

Even so, all is not lost for active managers — if the recovery from the global financial crisis is anything to go by. Copley Fund Research analysis showed that, historically, US and GEM active managers recorded their biggest outperformance against indexes in 2009.  

“Price distortions caused by high levels of volatility, forced selling and passive outflows will create opportunities for long-term active managers to buy into favoured stocks at attractive valuations,” Mr Holden concluded.