A Recap of Fund Performances in 2024

The Bank of America Fund Performance Monitor for 2024 highlights a challenging year for active fund managers, with only 30% outperforming their benchmarks globally. This underperformance was attributed to narrow market breadth, as only 29% of stocks outpaced the MSCI AC World Index. Among active funds, value funds saw the highest outperformance rate (38%), while growth funds lagged significantly, with just 28% exceeding benchmarks. Yield funds also underperformed, with a median relative return of -2.41% for the year, reflecting the broader difficulties in the market.

Emerging markets were particularly affected, with funds underperforming due to underweights in China, where the market rallied late in the year. Emerging market funds saw a 0.86% drop in December, significantly influenced by China's 2.6% market gain. In contrast, developed market funds fared slightly better but still lagged benchmarks. EAFE funds, which track developed markets excluding the U.S. and Canada, were among the more resilient, benefiting from European equity strength.

Index funds emerged as a relatively stable category, outperforming most active management styles due to their lower cost and ability to closely track benchmarks. While these funds underperformed benchmarks slightly (-0.06% in December), they were less impacted by market volatility. The relative stability of index funds reinforced the ongoing debate about the value of active management during periods of narrow market performance.

Among sectors, technology continued to dominate fund allocations, particularly in global funds, which maintained overweight positions in companies like TSMC, Visa, and Autodesk. These stocks benefited from strong earnings momentum, supporting broader portfolio performance despite challenges in other sectors. The "Triple Momentum Rank" highlighted these stocks as standout performers for global funds.

The report noted a significant dispersion in regional performance. U.S. funds underperformed by a modest -0.04% in December, showcasing their relative stability compared to funds in Europe and Asia. Japanese funds performed better than their counterparts in the Asia Pacific region, with only a marginal underperformance of -0.03%, while Asia Pacific ex-Japan funds faced challenges, particularly in smaller-cap investments.

From an investment style perspective, GARP (Growth at a Reasonable Price) funds underperformed across most periods analyzed, with a December median return of -0.37%. Growth funds, despite their popularity, struggled to deliver positive relative returns, reflecting the rotation toward value-oriented strategies. Meanwhile, yield-focused funds faced significant headwinds, as rising interest rates diminished their attractiveness.

Active funds struggled to justify their management fees in 2024, underperforming passive funds across all major categories. With passive funds capturing a growing share of assets under management (36% of the total), the trend toward lower-cost investing accelerated. Investors increasingly questioned the ability of active managers to deliver consistent outperformance in a low-breadth market environment.

Looking ahead, the report highlights the need for fund managers to adapt to evolving market conditions, particularly as inflationary pressures and central bank policies continue to shape the macroeconomic landscape. Fund flows into alternative strategies and sectors such as clean energy, AI, and emerging technologies are expected to rise as investors seek diversification and higher returns in 2025.

The findings underscore the importance of aligning investment strategies with broader market dynamics, as fund managers face increasing pressure to outperform in a competitive and challenging environment. The report serves as a critical reflection on 2024 and offers insights for fund managers and investors navigating the evolving financial landscape.