Better Money Return

SPIVA: 2020 Active vs. Passive Scorecard (Q1)

Better Money Return

Lagging performances by active fund managers aren'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, they hold stock jockeys to a higher standard -- namely, how they've done against their respective benchmarks. 

Along these lines, S&P Dow Jones Indices has published its latest installment of the SPIVA (S&P Indices Versus Active) Scorecard. Typically, this long-running research series is updated twice a year. 

With investors around the world exposed to an extreme bout of volatility spurred by the coronavirus pandemic, however, S&P's analysts are making further moves. In an investment alert sent in June, they emphasized a need to "provide an abbreviated Q1 2020 SPIVA scorecard to see how fund managers navigated the downturn in March and the subsequent recovery that began in April."

The overarching takeaway here remains the same. In good times as well as bad, active management has persisted to produce underwhelming results. Through March, more than 88% (88.4%) of all domestic stock fund managers had underperformed the broad S&P Composite 1500 Index over the past 15 years. 

One caveat pointed out by S&P researcher Berlinda Liu is that "unsurprisingly, SPIVA results are noisier for shorter time horizons." As in past reports, she finds "pockets of relative success for active managers up to three years." 

But as data sets are extended -- including domestic and international stock funds as well as fixed-income -- her perspective becomes clear that "most managers lagged their indices across all categories for any periods three years or longer."

The pie charts below provide a more detailed picture of SPIVA results that take into account 2020's first quarter dramatic virus-impacted volatility. 

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 15-year period ended March 31, 2020.

International Equity

The pie charts below show the percentage of active international equity funds that underperformed respective benchmarks for the 15-year period ended March 31, 2020.


The pie charts below show the percentage of active bond funds that underperformed respective benchmarks for the 15-year period ended March 31, 2020.

While Liu emphasizes that shorter-term benchmarking results are "noisier," she still observes an interesting event when businesses were essentially closed in the pandemic's early rise. These near-term factoids include:

  • Of domestic equity funds, 64% underperformed the broad S&P Composite 1500 in the initial four months of 2020, and 67% underperformed in the past two quarters.
  • During the one-year period ended March 31, 72% of domestic equity funds underperformed, slightly worse than the year-end 2019 result of 70%.
  • Most large-cap funds underperformed the S&P 500 across all time horizons in the first quarter. 

The consistency of large-cap managers' underperformance in 2020's first quarter market decline and the April rebound was especially noteworthy, according to Liu. By her team's research:

  • In Q1, some 54% of all large-cap funds underperformed.
  • In April's updraft, the year-to-date underperformance percentage by active large-cap managers increased to 59%.

This all took place, of course, during a period in which the IFA SP 500 index posted its worst quarterly performance (-19.6%) since the global financial crisis in 2008. After that February-March fall, blue chip stocks as represented by this benchmark rose by 12.8%. 

While such data in the longer scheme amounts to little more than noise, active management's performance during such volatile times does strike IFA's wealth advisors as somewhat ironic. 

After all, active fund managers typically justify their higher management and transactional costs with claims of protecting wealth during times of severe market stress. 

"Active managers sometimes seek to soften the conclusions of our regular SPIVA reports by arguing that, while index funds may have the advantage in rising markets, it's in volatile downturns that active management can prove its worth," Liu writes. "Historical data argue otherwise, and most active managers continued to underperform in 2020." 

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