Swedroe: Active Funds Whiff Again

March 11, 2016

The year-end 2015 S&P Active Versus Passive (SPIVA) scorecard provides yet another example of why—at least when it comes to the overall results of active management relative to appropriate benchmarks—the past is in fact prologue. Following are some highlights from the recently released report:

Domestic Equities

  • Last year, 66.1% of large-cap managers, 56.8% of midcap managers, 72.2% of small-cap managers and 61.9% of real estate investment trust managers underperformed the S&P 500, the S&P MidCap 400, the S&P SmallCap 600 and the S&P U.S. Real Estate Investment Trust index, respectively.
  • Over the five-year period ending Dec. 31, 2015, 84.2% of large-cap managers, 76.7% of midcap managers, 90.1% of small-cap managers and 82.6% of real estate investment trust managers lagged their respective benchmarks.
  • Over the 10-year investment horizon, again ending Dec. 31, 2015, 82.1% of large-cap managers, 87.6% of midcap managers, 88.4% of small-cap managers and 86.1% of real estate investment trust managers failed to outperform on a relative basis. In addition, less than 77% of active managers underperformed their benchmark in only one of the 18 asset class categories (large-cap value) that Standard & Poor’s examined.
  • Over the 10-year period, on an equal-weighted basis, actively managed large-cap funds underperformed their benchmark by 0.9 percentage points, actively managed midcap funds underperformed by 1.4 percentage points, actively managed small-cap funds underperformed by 1.8 percentage points and actively managed real estate funds underperformed by 1.9 percentage points. On an asset-weighted basis, the underperformance was somewhat smaller, at 0.8 percentage points for large-cap managers, 0.8 percentage points for midcap managers, 1.3 percentage points for small-cap managers and 1.2 percentage points for real estate investment trust managers.

Global/International Equities

  • For the one-, five- and 10-year periods, 59.5%, 79.0% and 80.4% of global equity fund managers underperformed their benchmarks. While the majority of international developed-market managers outperformed in 2015, over the five-year period, 55.4% underperformed, and over the 10-year period, 79.2% underperformed. Furthermore, the majority of international developed-market small-cap managers were able to outperform their benchmarks over the one- and five-year periods, but 62.5% failed to do so over the 10-year period.
  • In emerging markets—a supposedly inefficient asset class where active managers purportedly have advantages—over the one-, five- and 10-year periods, 64.1%, 69.9% and 91.4% of active managers underperformed.
  • Over the 10-year period, on an equal-weighted basis, active global equity fund managers underperformed by 0.8 percentage points, active international managers underperformed by 0.8 percentage points, active international small-cap managers outperformed by 0.2 percentage points and active emerging market managers underperformed by 1.6 percentage points. The figures were better for active funds on an asset-weighted basis, with global managers matching their benchmark, international funds underperforming by 0.1 percentage points, international small-cap managers outperforming by 0.6 percentage points and emerging market managers underperforming by 0.9 percentage points.

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