Swedroe: Indexes Top Europe Managers

April 04, 2016

Since 2002, S&P Dow Jones Indices has published its S&P Indices Versus Active (SPIVA) Europe Scorecard, which compares the performance of actively managed equity funds to their appropriate index benchmark. The year-end 2015 scorecard is the first to provide 10-year data. While not surprising to those familiar with the U.S. scorecard, the results should be depressing for investors who believe that active strategies are likely to outperform.

The data below show the percentage of actively managed funds that were outperformed by their respective benchmarks during the most recent 10-year period. The results are based on euro-denominated returns.

  • 86% of eurozone actively managed equity funds underperformed the S&P Europe 350 Index (350 leading blue chip companies drawn from 16 developed European markets). On an equal-weighted basis, active funds underperformed 4.0% versus 4.9%. On an asset-weighted basis, active funds underperformed by 0.4 percentage points.
  • 91% of eurozone actively managed equity funds underperformed the S&P Eurozone BMI (Broad Market Index), a comprehensive benchmark that includes large-, mid- and small-cap stocks from developed and emerging eurozone countries). On an equal-weighted basis, active funds underperformed 3.0% versus 4.4%. On an asset-weighted basis, active funds underperformed by 1.3 percentage points.
  • 87% of Nordic actively managed equity funds underperformed the S&P Nordic BMI (representing the Swedish, Danish, Norwegian and Finnish stock markets). On an equal-weighted basis, active funds underperformed 7.7% versus 7.9%. On an asset-weighted basis, active funds matched the performance of the index.
  • 98% of actively managed global equity funds underperformed the S&P Global 1200 Index. On an equal-weighted basis, active funds underperformed 3.3% versus 6.5%. On an asset-weighted basis, active funds underperformed by 2.5 percentage points.
  • 99% of actively managed U.S. equity funds underperformed the S&P 500 Index. On an equal-weighted basis, active funds underperformed 5.1% versus 8.2%. On an asset-weighted basis, active funds underperformed by 2.4 percentage points.
  • In France, Germany, Italy, Spain and the Netherlands, 85%, 79%, 73%, 82% and 97%, respectively, of actively managed funds were outperformed by their associated S&P BMI country index. On an equal-weighted basis, active funds underperformed by 0.7 percentage points, 0.8 percentage points, 1.0 percentage point, 0.3 percentage points and 4.1 percentage points, respectively. On an asset-weighted basis, active funds underperformed in France by 0.8 percentage points and in the Netherlands by 3.4 percentage points. However, they outperformed in Germany by 0.1 percentage points, in Italy by 1.2 percentage points and in Spain by 0.6 percentage points.
  • 97% of actively managed emerging market funds underperformed the S&P/IFCI Emerging Markets Index. On an equal-weighted basis, active funds underperformed 2.7% versus 5.6%. On an asset-weighted basis, active funds underperformed by 1.8 percentage points.

Overall, the evidence demonstrates how difficult it is for actively managed mutual funds to outperform over longer time frames. The evidence is especially damning when it comes to the supposedly inefficient asset class of emerging markets, where just 3% of actively managed funds beat their benchmark, and where the underperformance was 2.9 percentage points on an equal-weighted basis and 1.8 percentage points on an asset-weighted basis.

As you review the data, you should keep in mind as well that the results presented here are all based on pretax returns. This is important because the evidence shows that taxes, not a fund’s expense ratio or trading costs, are often the greatest cost of active management.

The bottom line is that the case against active management as the winning strategy is just as strong in international markets as it is in the United States. It’s a game that’s possible to win, but the odds make it so unlikely that it’s not prudent to try. It’s why Charles Ellis called it the loser’s game.

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

Find your next ETF

Reset All