Swedroe: Time Not On Active's Side

October 22, 2018

Since 2002, S&P Dow Jones Indices has published its biannual Indices Versus Active (SPIVA) reports, which compare the performance of actively managed equity funds to their appropriate index benchmarks. The 2018 midyear scorecard includes 15 years of data.

Following is a summary of its findings, which cover various periods ending June 30, 2018:

  • Over the one-year period, 63.5% of large-cap managers, 54.2% of midcap managers and 72.9% of small-cap managers underperformed the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600, respectively. As horizons increase, so does the percentage of managers who underperform.
  • Over the 15-year investment horizon, 92.4% of large-cap managers, 95.1% of midcap managers and 97.7% of small-cap managers failed to outperform on a relative basis. Over this period, the asset class in which active managers had the best result was real estate, with “only” 82.8% of active managers underperforming. Active managers’ worst performance was in the supposedly inefficient asset class of small-cap growth stocks, where 98.6% of them underperformed.
  • Over the 15-year horizon, on an equal-weighted (asset-weighted) basis, the average active fund underperformed by 1.05% (0.55%), the average active large-cap fund underperformed by 1.48% (0.84%), the average active midcap fund underperformed by 2.15% (1.29%), the average active small-cap fund underperformed by 1.61% (0.92%), and the average active REIT fund underperformed by 0.95% (0.58%).
  • In the supposedly less efficient international markets, over the one-, three-, five-, 10- and 15-year investment horizons, active managers across all international equity categories underperformed their benchmarks. The longer the time horizon, in general, the more funds underperformed. Over the 15-year horizon, 81.5% of active global funds underperformed, 89.4% of active international funds underperformed, and 74.2% of active international small-cap funds underperformed. The worst performance was in the supposedly inefficient emerging markets, where 94.4% of active funds underperformed. On an equal-weighted (asset-weighted) basis, global funds underperformed by 1.17% (0.02%), international funds underperformed by 1.73% (0.57%), international small-stock funds underperformed by 0.80% (outperformed by 0.1%), and emerging markets underperformed by a shocking 2.53% (1.37%). It’s also worth noting that the poor performance in supposedly inefficient emerging markets existed in bond funds as well. On an equal-weighted (asset-weighted) basis, emerging market bond funds underperformed by 1.67% (0.58%).
  • Over the 15-year period, in all 14 domestic bond categories, the vast majority of active funds underperformed their benchmarks. The best performance was in short-term investment-grade funds, with 68.1% of active funds underperforming. The worst performance was in long-term government bonds, with 98.1% of funds underperforming. Looking at all 26 bond categories, including international and emerging markets, in each case, the equal-weighted returns were below their benchmark. The worst case was in long-term government bonds, where active funds underperformed by 2.39%. On an asset-weighted basis, there were, however, three cases (U.S. intermediate government/credit funds, U.S. short-term funds and global income funds) in which active managers outperformed (by 0.43%, 0.27% and 0.82%, respectively).


The SPIVA scorecards provide powerful evidence regarding the persistent failure of active management’s ability to persistently outperform. 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.”

Finally, keep in mind that all of the preceding performance data is based on pretax returns. Because the highest cost of active management for taxable investors typically is taxes, the data would look even worse on an after-tax basis.

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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