Swedroe: SPIVA Survey Continues Passive Winning Streak

April 17, 2017

Performance Gap
The SPIVA Scorecard also allows us to see the performance gap—the degree to which active funds underperformed. The following data covers U.S. funds for the 15-year period ending 2016:

  • On an equal-weighted basis, large-cap growth, core and value funds underperformed by 1.7 percentage points, 1.6 percentage points and 0.9 percentage points, respectively. On an asset-weighted basis, they underperformed by 1.3 percentage points, 1.4 percentage points and 0.3 percentage points, respectively.
  • On an equal-weighted basis, midcap growth, core and value funds underperformed by 3.1 percentage points, 2.1 percentage points and 1.7 percentage points, respectively. On an asset-weighted basis, they underperformed by 2.3 percentage points, 1.6 percentage points and 1.7 percentage points, respectively.
  • On an equal-weighted basis, small-cap growth, core and value funds underperformed by 4.4 percentage points, 2.3 percentage points and 1.1 percentage points, respectively. On an asset-weighted basis, they underperformed by 3.5 percentage points, 1.8 percentage points and 0.7 percentage points, respectively. 
  • On an equal-weighted basis, real estate funds underperformed by 0.7 percentage points. On an asset-weighted basis, they underperformed by 0.4 percentage points.
  • On an equal-weighted basis, multicap growth, core and value funds underperformed by 1.2 percentage points, 1.5 percentage points and 1.3 percentage points, respectively. On an asset-weighted basis, they underperformed by 1.1 percentage points, 0.7 percentage points and 1.3 percentage points, respectively. This indicates that the freedom of multicap funds to move across market capitalization doesn’t translate to outperformance.  

While the above data is compelling evidence on the failure of the active management industry to generate alpha, it’s important to note that all the above figures are based on pretax returns. Given that the higher turnover of actively managed funds generally makes them less tax efficient, on an after-tax basis, the failure rates would likely be much higher (taxes are often the highest expense for actively managed funds).

 

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