Although active managers argue that “inefficient investment areas like small-cap stocks and emerging markets are where they shine,” a new report from Willis Towers Watson found that they are missing their benchmarks. This according to a recent article in Institutional Investor.

The article says, “According to WTW, less than half of managers have delivered returns above benchmarks over five, seven, and ten-year time periods, even before fees are subtracted.” After accounting for fees, the report found that only about 20 percent of managers beat their benchmarks.

WTW attributes the poor performance to fundamental strategy mistakes in the emerging market space, noting that “investments in emerging market debt remain dominated by broad, generalist funds” despite the vast differences among emerging market countries. The chance of any single manager having an adequate degree of skill across currencies, countries, companies and sectors, it argues, is “very small.”

The report suggests that asset managers eliminate “jack of all trades” asset managers in favor of specialists in different areas. It also suggests that managers have analysts placed locally in emerging market regions instead of centralized in major cities like London and New York, and issues a warning regarding volatility in local currency sovereign debt: “Most local currency managers do little to protect investors from drawdowns. This is particularly troublesome in stressed markets where increased correlation among EM currencies overwhelms the case for country selection.”