Better Money Return

SPIVA: 2020 Full-Year Active vs. Passive Scorecard

Better Money Return

Warren Buffett once observed: "The stock market is a device to transfer money from the impatient to the patient."

The 'Oracle of Omaha,' who built his investment fortune as head of global conglomerate Berkshire Hathaway, offered such an incisive synopsis of financial markets long before 2020's pandemic-inspired turbulence. But impatient investors who let short-term volatility guide their decisions last year probably would've been well-advised to come to grips with such sage advice by Buffett.

Consider how itchy fingers would've stung traders who bailed on stocks early in 2020. In February, IFA's large- and small-cap U.S. stock indexes suffered swift double-digit falls amid surging coronavirus cases. By late March, however, both domestic benchmarks had started to rebound as more American businesses reopened. (See chart below.) 

In September, the size and value premiums made a robust comeback. The recovery was strong enough to carry into a new year, playing havoc with portfolios of swing traders and short sellers alike. (See chart below.)  

Of course, judging performance over shorter periods is hardly a statistically meaningful way to appreciate the value of patience to an investor over the long haul. That's why IFA's wealth advisors like to focus on research reports with larger sets of data. 

One of those is the SPIVA (S&P Indices Versus Active) Scorecard. This semiannual research series compares active fund managers against their respective benchmarks. The latest report, which tracked data through 2020, studied shorter timeframes as well as longer ones. In their most recent scorecard, S&P's researchers noted that active fund managers proved particularly ineffective over the past 12 months:

"While the turmoil and disruption caused by the pandemic should have offered numerous opportunities for outperformance (by active managers), 57% of domestic equity funds lagged the S&P Composite 1500 index during the one-year period ended Dec. 31, 2020."

That's right. Active management's promise of providing safety from market storms again proved empty for U.S. stock fund investors. Such a failure to live up to the industry's own hype came at a time when investors arguably needed these stock jockeys to prove their worth the most. And it wasn't just a fluke: For the 11th consecutive year, SPIVA's researchers noted, the majority of active fund managers underperformed the S&P 500 index. 

Taking a step back, the big picture takeaway of SPIVA's latest scorecard remains much the same. As illustrated below, in good times as well as bad, active management has consistently produced underwhelming results. In the past 20 years (through 2020), SPIVA found that slightly more than 86% of all domestic active stock fund managers had underperformed the S&P Composite 1500 index.

It was even worse for U.S. small-cap stock investors as 88.06% of active fund managers lagged the S&P SmallCap 600 benchmark. Even active management's record in foreign markets over the past 20 years raised red flags. Inquisitive investors might take note that more than 91% of international stock fund managers weren't able to beat their respective S&P index.

Performance Comparisons

U.S. Equity

The pie charts below show the percentage of active U.S. equity funds that underperformed their respective benchmarks for the 20-year period ended Dec. 31, 2020.

International Equity

The pie charts below show the percentage of active international equity funds that underperformed respective benchmarks for the 20-year period ended Dec. 31, 2020.


The pie charts below show the percentage of active bond funds that underperformed respective benchmarks for the 20-year period ended Dec. 31, 2020.

Lagging performance by active fund managers isn't a new story. As we've been chronicling for decades, leading market researchers know better than to listen to boasts about peer-beating results. Instead, managers are held to a higher standard — namely, how they've done against their respective benchmarks. 

Besides comparing active managers against index results, the SPIVA research series also separates itself from the pack by taking into account operational issues that can tilt performance numbers in active management's favor. Such a bias, which is routinely embedded into many fund managers' data reporting platforms, can be characterized as a sort of "shell game" played by proponents of active management. 

The SPIVA scorecard sorts through such 'noisy' data by scrubbing performance numbers in several different ways. Two of the most significant relate to:

  • Survivorship Bias. This is a common practice in which managers merge or close funds. In the past 20 years, according to SPIVA research, nearly 70% of domestic stock funds and two-thirds of international equity funds were shuttered or folded into other managers' coffers. Why is this so alarming? Poor results are essentially swept underneath the rug, either going away completely and/or replaced by another fund's performance record. Hence the "shell game" nomenclature.
  • Style Consistency. S&P researchers track how consistent managers are in following their style mandates. For example, if a large growth manager decides to buy a lot of value stocks at any given time, the SPIVA data will be adjusted to track those changes using a more appropriate benchmark and fund category. As a result, such a research methodology offers a more precise "apples-to-apples" comparison of relative performance over time.

At IFA, our investment committee urges investors not to trust any research that doesn't scrub return numbers to take into account these types of number-crunching games.  

In our own research, we've found a consistent pattern — active management doesn't live up to its own hype. Even during extreme bouts of market volatility, a wealth of quantifiable and in-depth studies shows us that a vast majority of active managers haven't exhibited any inherent ability to successfully time markets. 

The SPIVA research scorecard is just another piece of evidence lending to our strong recommendation that investors who try to 'beat the market' are likely going to wind up failing, thereby jeopardizing their portfolio's long-term well-being. Along these lines, we remind investors that each IFA client is entitled to a holistic and unique financial plan. This planning tool, which is designed to serve as a comprehensive blueprint to help guide each person's wealth-building future, is offered by our advisors on a complimentary basis. 

This is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, service, or considered to be tax advice. There are no guarantees investment strategies will be successful. Investing involves risks, including possible loss of principal. This is intended to be informational in nature and should not be construed as tax advice. IFA Taxes is a division of Index Fund Advisors, Inc. For more information about Index Fund Advisors, Inc., please review our brochure at or visit