The Morningstar Australian and Global Listed Property Sector Wrap-Up said even the best active managers typically outperform by only a few percentage points.
Morningstar senior research analyst Kathryn Young while greater differentiation from the benchmark has benefited some active funds, bets against the index can also be detrimental.
Morningstar plotted the performance of a passive strategy, the Vanguard Property Securities Index, over a three year period and found it typically outperformed around half of the actively managed strategies.
“As a result, there is good reason to choose a relatively cheap strategy that alleviates the need to monitor an active manager and his or her reaction to the cycle’s progression,” said Ms Young.
She also said the improvement in performance among active strategies may only be cyclical.
Morningstar has upgraded some active strategies such as the Zurich Renaissance Australian Property Securities fund from bronze to silver and the BT Property Investment fund from silver to gold as it believes the teams on these strategies can “stand the test of time”.
Ms Young said this is due to the fact these teams are comprised of “managers with decades of experience, unique insights and a track record of serving unitholders well”.
“We are less sure, however, that improvements across the broader sector will last long enough to warrant a change to our view that passive strategies deserve our highest recommendation,” said Ms Young.
Morningstar has awarded its highest recommendation to passive strategies such as the Vanguard Property Securities Index, the Vanguard Australian Property Securities Index ETF and the BlackRock Indexed Australian Listed Property.
