Swedroe: SPIVA Survey Continues Passive Winning Streak

April 17, 2017

Fixed Income
The performance of actively managed funds in fixed-income markets was just as poor. The results below are for the 15-year period:

  • The worst performance was in long-term government bond funds and long-term investment-grade funds, as just 3% of active funds beat their respective benchmarks. On an equal- (asset-) weighted basis, they underperformed by a shocking 3.3 percentage points (2.7 percentage points) and 2.2 percentage points (2 percentage points), respectively. Active high-yield funds didn’t fare much better, with just 4% outperforming. On an equal- (asset-) weighted basis, the outperformance was also a shocking 2% (1.7%).
  • For domestic funds, the least poor performance was in intermediate- and short-term investment-grade funds. In both cases, 73% of funds underperformed. On an equal-weighted basis, the underperformance was 0.3 percentage points and 0.7 percentage points, respectively. However, on an asset-weighted basis, they managed to outperform by 0.7 percentage points and 0.3 percentage points, respectively. That is possibly explained by their holding longer maturities (taking more risk) than the benchmarks.
  • Emerging market bond funds also fared poorly, as 76% of them underperformed. On an equal-weighted basis, the underperformance was 1.4 percentage points. On an asset-weighted basis, the underperformance was 0.2 percentage points.

The SPIVA Scorecards provide powerful evidence on the persistent failure of active management’s ability to generate alpha (risk-adjusted outperformance). They also provide compelling support for Charles Ellis’ observation that, while it’s possible to win the game of active management, the odds of doing so are so poor that it’s imprudent to try—which is why he 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.


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