Newest Data In: Active Managers Still Failing

September 12, 2014


Nope. In fact, active management worked worse in small-cap than anywhere else in equities. As shown above, 91 percent of the 213 small-cap growth managers over the past five failed to beat the S&P SmallCap 600 Growth Index. How these people keep their jobs is a mystery to me.

As for investors, it’s as if they’ve never heard of the Vanguard Small-Cap Growth ETF (VBK | A-88), which, at 9 basis points, is about as thrifty as you can get, and which, if you’re keeping score, has beaten the S&P SmallCap 600 Growth Index by a smidge over the last year.

And lest you think this is splitting hairs, consider the asset-weighted performance of mutual fund investors in U.S. equities:


Over the last five years, chasing the dream has cost you over a percent a year. I don’t know about you, but I don’t need that kind of anxiety in my life.

The report’s just as dismal when it comes to most international equity, although, there, at least one category gets back to coin flip probabilities:


Here we can at least see a glimmer of hope. Indeed, over the last three- and five-year periods, slightly more than half of international small-cap managers have managed to beat the naive benchmark. That’s awesome, right? Active management lives! Not so fast. How did those investors actually do?


Over five years, the average dollar returned 40 bps over the naive index. But look at the last year. In a fantastic bull market, the average investor trailed the index by more than 5 percent! You better be in it for the long haul to stomach a year like that.


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