Indexing Regains Edge Over Active Approach

October 19, 2010

Passive funds were back on top by the end of 2010’s first half, after active managers had them on their heels in 2009

Most actively managed U.S. equity mutual funds underperformed their benchmarks in the first half of this year, according to the latest Standard & Poor’s Indices Verses Active Funds Scorecard.

The SPIVA report, covering the 12 months ended June 30, marks a departure from the last report, when many active investors fared better than their benchmarks at a time of upheaval following the market crash of 2008-2009.

The new report shows 56 percent of managers failed to beat their benchmarks, reestablishing the historical trend. Active management has consistently underperformed in most stock and bond asset classes for most of the last decade. Apart from 2009, the last year active management fared better was in 2000, when 40.5 percent of managers failed to beat their indexes, vs. 2009’s 41.67 percent. Dave Nadig recently wrote in his blog on Vanguard’s active funds that years like 2009 and 2000 are rare.

The data show that the percentage of equity managers besting their benchmarks over the last year is largely in line with historical averages over one-, three- and five-year figures.

Active manager outperformance was a bit let pronounced on an asset-weighted basic, which confines active vs. passive comparisons to funds of similar sizes.

 

Average Performance Of Selected U.S. Equity Funds On Asset-Weighted Basis

Category

1-Year %

3-Year %

5-Year %

S&P 500

14.42

-9.82

-0.80

All Large Cap Funds

13.07

-9.41

-0.65

S&P MidCap 400

24.93

-5.89

2.22

All MidCap Funds

20.78

-7.46

1.72

S&P SmallCap 600

23.65

-7.63

0.82

All SmallCap Funds

21.42

-7.61

1.00

S&P Composite 1500

15.56

-9.43

-0.49

All Multi-Cap Funds

15.07

-8.40

0.63

 

Active Bond Managers Shine

Active bond managers fared a bit better than their counterparts in equities in the past year. The most shining examples were managers of short- and intermediate-term government securities, about 60 percent of whom outperformed their respective benchmarks in the 12 months ended June 30.

However, those bright spots of outperformance completely disappeared in the three- and five-year time frames, according to the S&P report.

 

Average Performance Of Selected U.S. Fixed-Income Funds On Asset-Weighted Basis

Category

1-Year %

3-Year %

5-Year %

Barclays Long Govt.

12.19

10.45

6.02

Govt. Long Funds

8.82

7.67

5.17

Barclays 1-3 Yr. Govt.

2.87

4.95

4.38

Govt. Short Funds

6.77

6.11

4.42

Barclays Int. Govt.

8.28

6.97

5.26

Govt. Int. Funds

13.22

7.84

5.63

Barclays High Yield

26.75

6.53

7.17

High-Yield Funds

23.40

3.55

5.33

 

 

Percentage Of U.S. Equity And Fixed-Income Funds Outperformed By Their Benchmarks*

Category

Comparison Index

1 Year

3 Year

5 Year

All Large Cap Funds

S&P 500

75.42

52.09

63.76

All Mid Cap Funds

S&P MidCap 400

80.76

76.52

76.65

All Small Cap Funds

S&P SmallCap 600

71.78

68.01

65.18

All Domestic Equity Funds

S&P Composite 1500

55.98

55.58

60.64

Government Long Funds

Barclays Long Government

89.09

94.00

82.98

Govt. Int. Funds

Barclays Int. Government

38.64

66.67

72.92

Government Short Funds

Barclays 1-3 Year Government

39.53

66.67

74.42

High-Yield Funds

Barclays High Yield

80.27

94.41

92.68

*Based on equal-weighted fund counts

 

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