Swedroe: SPIVA Survey Continues Passive Winning Streak

April 17, 2017

Since 2002, S&P Dow Jones Indices has published its S&P Indices Versus Active (SPIVA) Scorecards, which compare the performance of actively managed equity funds to their appropriate index benchmarks.

For the first time, the year-end 2016 U.S. Scorecard includes 15 years of data. The longer time horizon provides us with a more complete measure of the effectiveness of active managers across all categories. Following are some of the highlights from the report:

  • During the one-year period ending Dec. 31, 2016, 66.0% of large-cap managers, 89.4% of midcap managers and 85.5% of small-cap managers underperformed the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600, respectively. The worst performance was in midcap value funds, where almost 97% underperformed.
  • As you should expect, as we extend the horizon and as the burden of higher costs compounds, the failure rates tend to increase—over the 15-year period ending in 2016, 92.2% of large-cap managers, 95.4% of midcap managers and 93.2% of small-cap managers trailed their respective benchmarks. The worst performance was in small-cap growth, where 99.4% of active funds failed to beat their benchmarks. So much for the argument that small stocks are an inefficient asset class that active managers can exploit. And the only category where fewer than 80% of active funds failed to beat their benchmarks was large-cap value funds, where 78.5% failed to do so.
  • Across all time horizons, the majority of managers across all international equity categories underperformed their benchmarks. Over the last 15 years, the least poor performance was in international small-caps, where 18% of active funds outperformed. In the supposedly inefficient emerging markets, just 10% outperformed.
  • Highlighting the importance of accounting for survivorship bias, funds disappeared at an astonishing rate. Over the 15-year period, almost 60% of domestic equity funds were either merged or liquidated. Similarly, more than half of global/international equity funds, and almost half of fixed-income funds, were merged or liquidated.


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