Active vs. Passive Management
Active vs. Passive Management
Each year, S&P Dow Jones Indices looks at the percentage of actively managed mutual funds that outperform their respective benchmarks. The SPIVA Scorecard shows actively managed funds constantly underperform their indices. For example, the December 2012 S&P Indices vs. Active Funds showed 56-80% of actively managed funds trailed their S&P asset class in all domestic and global categories, except one (large cap value funds), for the 1-year period.
% of Mutual Funds Underperforming Their Benchmark
Fund Category | 1 Year | 5 Years |
All Multi-Cap | 70% | 80% |
Multi-Cap Growth | 55% | 90% |
Multi-Cap Value | 75% | 65% |
All Large-Cap | 65% | 75% |
Large-Cap Growth | 50% | 90% |
Large-Cap Value | 85% | 50% |
All Mid-Caps | 80% | 90% |
Mid-Cap Growth | 90% | 95% |
Mutual Funds Underperforming Their Benchmark
Fund Category | 1 Year | 5 Years |
Mid-Cap Value | 80% | 75% |
All Small-Cap | 70% | 85% |
Small-Cap Growth | 70% | 90% |
Small-Cap Value | 65% | 70% |
Global | 70% | 65% |
Foreign | 50% | 75% |
Foreign Small-Cap | 15% | 20% |
Emerging Markets | 50% | 80% |
Over the 5-year period, 50-92% of U.S. equity and 21-75% of global and foreign equity funds trailed their S&P benchmarks. In 2010, just 5% of U.S. and U.K. equity or bond funds had positive alpha (source: Financial Markets, Institutions & Instruments, May 2010). Over the 5-year period (ending 12/31/2012), 0.1% top-quartile active managers stayed in the top quartile. Keith Cuthervertson (co-author of “Mutual Fund Performance: Measurement and Evidence,” a May 2010 article) found persistence consistency only among active mangers that rebalanced frequently.
A June 2013 paper by Ferri and Benke, showed funds with the highest expense ratios (those in the top half) underperformed their index fund counterparts 70-80% of the time.