European and French small caps were the top performing funds in 2016, Lyxor Asset Management has revealed.

Lyxor’s annual study comparing the performance of active funds in Europe with that of their benchmarks found that in 2016, French small caps outperformed benchmarks by 61 per cent and European small caps outperformed by 56 per cent.

On the other hand, European large caps were among the worst performing, with only 19 per cent of funds outperforming benchmarks in 2016 and only 5 per cent of French large caps outperforming benchmarks in the same year.

Moreover, Lyxor suggested that investments in passive funds would have been the ‘better choice’ in most cases in 2016 as less active funds were found to outperform their benchmark.

Lyxor’s highlighted that 28 per cent of active funds outperformed traditional benchmarks in 2016, down from 47 per cent in 2015.

While the number of outperforming active funds was significantly less last year, Lyxor’s study maintained that over a 10 year period, 19 per cent of active funds outperformed benchmarks, from 20 per cent for a 10 year period in 2015.

In addition, the annual study noted that on comparing active funds in Europe with Smart Beta indices, only 13 per cent of active funds beat the Smart Beta index.

Lyxor head of ETF research Marlene Hassine said: “In the current market environment, which is influenced more by politics than by the economy, it has been difficult for active managers to generate performance and take advantages of changes in trends in 2016. These political uncertainties still to the fore in 2017, particularly in Europe, are certainly going to make the task of investment managers harder in 2017.”

Although being dedicated to passive investing, the firm added in its report: “We believe that activre and passive approaches have merit. In our view, active management should be seen as complementary to an index-tracking approach, not in opposition to it.”

Looking to the first quarter of 2017, Lyxor noted a “slightly better start than 2016”, with 34 per cent of active funds outperforming benchmarks.

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