It’s been a rocky start to 2018 for equity markets globally—volatility has returned with a bang and February saw the first 10% market correction in a while. So, why are active managers smiling?

It’s hardly breaking news that active management struggled mightily in the years since the global financial crisis, intensifying the questions about the effectiveness of active management and accelerating the surge in investment flows into passive equity strategies. Part of the problem for active was structural. A crowded field, developed over many years of strong markets and inflows, grew a large industry of active managers fighting for alpha.

At the same time, active managers drew closer to the benchmark, limiting the opportunity to outperform. However, based on active share and tracking error, the 20% of managers who were the most active beat their benchmarks substantially.

Equally important, the relative performance of active managers hasn’t been uniform across environments. There were tough times—the buildup to the tech bubble in the late 1990s and the QE-driven period after the global financial crisis. Across those two periods, only 21% of active managers outperformed (Display). But in all other time periods, 50% beat the benchmark.

This performance pattern underscores one of the most important determinants of active-management success: Are we in a beta trade or not?