Swedroe: ‘Incredible Shrinking Alpha’ Continues

September 20, 2016

Same Trend With International Equity, Fixed Income

The SPIVA report also noted that over the 10-year investment horizon, managers across international equity categories underperformed their benchmarks: 81.2% of active global funds underperformed, 80.2% of active international funds underperformed, 62.3% of active international small funds underperformed and 81.9% of active emerging market funds underperformed. In addition, only about 60% of the global and international funds managed to survive the full period.

The figures for actively managed fixed-income funds are equally bleak. For example, 95.7% of actively managed long-term government bond funds underperformed (and, on an equal-weighted basis, the 8.7% return to the index doubled the 4.2% return earned by active funds, which is quite a performance gap), 79.6% of actively managed intermediate-term government bond funds underperformed, and 77.1% of actively managed short-term government bond funds underperformed.

An astonishing 98.2% of actively managed long-term corporate bond funds underperformed (with the performance gap reflected in the 8.4% return of the index versus the 5.4% return of active funds). A nearly as astonishing 96.6% of actively managed high-yield funds underperformed (with the performance gap reflected in the 7.6% return of the index versus the 5.5% return of active funds).

In addition, 80.4% of actively managed mortgage-backed security funds underperformed, 81.8% of actively managed emerging market bond funds underperformed, 59.8% of actively managed intermediate-term corporate bond funds underperformed and 63.7% of actively managed short-term corporate bond funds underperformed. The asset-weighted returns gap was similar in each case, although somewhat smaller than when equal-weighting returns.

Perhaps the best way to summarize the findings is to again recall Yogi Berra’s famous remark: It’s deja vu all over again—only more so.

Larry Swedroe is the director of research for The BAM Alliance, a community of more than 140 independent registered investment advisors throughout the country.


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