The active fund management industry has had a tough time of things of late. Trackers, largely exchange-traded funds, which look to match the returns from global stock markets, have attracted substantial inflows as investors prize their low costs and the diversification they offer.

Compounding this, because the performance of major indices has been driven by a concentrated number of huge tech names, it has been pretty difficult for active managers to outperform global indices.

According to analysts at Bank of America, over the last 15 years there have been $5 trillion worth of inflows into passive global equity funds versus $2.5 trillion worth of redemptions from active funds.

However, there may just be some early signs of a shift which could create a more favourable backdrop for actively-managed vehicles.

Bank of America’s analysts recently highlighted the smallest outflow from active funds since September 2023 at $2.9 billion and, along with it, an increase in stock price dispersion. As they observe: ‘Dispersion on the rise means flows to active equity funds.’

What is stock price dispersion? Essentially it’s the size of the range of returns for a grouping of stocks – Bank of America employs a measure of the percentage of stocks trading below their 200-day moving average. 

Generating a return better than the benchmark is hard if the gains and losses in the underlying stocks are very similar to those of the benchmark. However, if the level of dispersion increases then the ability to pick the right stocks becomes more important and, potentially, more prized by investors.

They may therefore feel happier about paying the extra fees associated with active management. Not yet cause for celebration for the industry but a glimmer of hope at least.

Luxury continues to have a China problem. As we reported last week, the sector is among a number of industries in the West which are finding things difficult in the world’s second largest economy.

US cosmetics firm Estee Lauder (EL:NYSE) is the latest name to feel the pinch, with sales in the 12 months to 30 June dipping 2% and profit dropping 45% as the company projects June 2025 revenue growth in a range between 1% lower and 2% higher.

If achieving growth of any kind is reliant on China bouncing back, then investors could be left disappointed. The danger is this is not just a cyclical downturn but a cultural shift in China away from Western brands and even from the whole idea of putting wealth on display. Time will tell.

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