By Patturaja Murugaboopathy

(Reuters) – Global active equity funds have seen higher inflows this year, bolstered by a surge in equities and higher participation of retail investors, who aim for higher returns than the benchmark indexes.

Refinitiv data shows that global active equity funds attracted $36.6 billion during the first eight months, which is an increase from the outflows experienced in seven previous years.

Graphic: Flows into global active equity funds: https://graphics.reuters.com/ACTIVEFUND-FLOWS/ACTIVEFUND-FLOWS/lbvgngldkpq/chart.png

European active equity funds led the inflows, obtaining $155.1 billion, while Asian funds saw $41.7 billion.

Outflows to U.S. equity funds were $191 billion. However, this was 32% more than 2020.

“The inflows broadly appear to be related to portfolio rebalancing and investors’ seeking active managers who can dynamically adjust to an ever shifting environment,” said Russ Ivinjack, senior partner at investment consultant Aon (NYSE:).

“We expect flows to active strategies to continue to be strong as most investors have a full allotment to indexing and require the additional return potential that active management offers in less efficient markets.”

Flows into active funds have lagged in the past few years due to their higher fees and a lacklustre performance over passively managed funds.

The return from active equity funds this year was 13.8%. This is less than that of passive equity funds, who gained 14%.

BofA wrote this month that the market was rife in alpha opportunities. The dispersion of the top and bottom performing stock quintiles is trending well above the average over the past year,” he said.

Retail trading levels have increased since the beginning of the year, helped by the frenzy of buying in stocks such as GameStop Corp (NYSE:).

Analysts said that index inclusion happens later, so passive fund investors must forgo the initial gains.

GameStop Corp’s stock price has increased 988% in the past year, compared to 18% for the S&P SmallCap 600 index.

“GameStop was a part of the S&P SmallCap 600, but it was after the stock gained some 10-fold in 2021 that it was added to the S&P MidCap 400 index,” said Kunal Sawhney, chief executive officer at independent research firm Kalkine.

Indexes depend on what a stock trades in the stock market. Therefore, any additions or substitutions to the index are determined based upon stock performance.