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SPIVA: Mid-Year 2019 Active vs. Passive Scorecard

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If you're an active investor, a new day has dawned. You're now in the minority.

According to estimates by Morningstar's independent analysis of investment flows in and out of mutual funds and exchange-traded funds, U.S. passive assets hit a net $4.37 trillion at the end of September. By contrast, actively managed mutual fund and ETF assets sunk to $4.27 trillion.1

Passive fund assets had actually first pulled ahead in August, again per Morningstar. This marked a sea change in the investments industry, leading the Wall Street Journal to proclaim in its headline: "Wall Street Brokers Missed the Index-Funds Memo." 

In this special report, the paper cited independent research from Cerulli Associates showing that a distinct minority of clients at leading brokerages invested in passively managed funds.2 In trying to find a reason for such seemingly out-of-the-ordinary investment trends, the article noted "there's the raw fact that some brokers and their firms can still get paid more in commissions and other compensation with active funds than passive ones."

We've written about the importance of working with an independent and fiduciary-minded wealth advisor as opposed to a broker, who is typically compensated at least in-part by transactional activities and other business concerns. At Index Fund Advisors, we're bound to an ethical mandate to always act in the best interests of our clients, not our own. IFA's advisors work on a fee-only basis and their clients hold accounts at an outside brokerage (Schwab, TD Ameritrade or Fidelity). 

Given such a dichotomy that exits in the marketplace about the roles of brokers as opposed to financial advisors acting as fiduciaries for their clients, another piece of evidence is worth exploring. It comes from analysts at Standard & Poor's and continues a series of data crunching exercises comparing active fund managers against their closest-fit S&P indexes. 

The latest SPIVA (S&P Indices Versus Active) Scorecard updates performance through mid-year 2019. It's referred to as a "persistence" report since such research is designed to show how consistent returns are over time for stock and bond managers. Ironically, these research reports usually turn out uncovering just how inconsistent active management really is -- over both shorter- and longer-term periods of study. 

This lack of persistence in beating respective indexes remains omnipresent in the 2019 mid-year scorecard. (See the pie charts below.) Over the past 15 years through June, an overwhelming number of active domestic stock fund managers kept falling behind their S&P benchmarks. (Notice how this performance gap widens as the length of time reviewed increases.)

For all types of U.S.-based stock funds, 87.76% of active managers lagged their indexes during this period. In large- and mid-cap funds, it was worse: 89.83% of large-cap managers posted losing returns while 90.33% of all mid-cap managers produced lower returns. Even in small caps, a part of the market in which active managers claims to have increased chances to outperform, 90.25% were beaten by their respective benchmarks. (The table below provides a broader asset class breakdown.)

Percentage of U.S. Equity Funds Outperformed by Benchmarks
15 Years (As of 6/30/2019)
All Domestic Funds S&P Composite 1500 70.97 69.46 81.66 87.88 87.76
All Large-Cap Funds S&P 500 69.86 70.74 78.52 88.05 89.83
All Mid-Cap Funds S&P MidCap 400 35.55 51.41 63.56 85.32 90.33
All Small-Cap Funds S&P SmallCap 600 35.77 60.59 75.09 87.82 90.25
All Multi-Cap Funds S&P Composite 1500 72.05 68.42 82.79 89.86 90.15
Large-Cap Growth Funds S&P 500 Growth 69.49 49.80 65.80 86.47 91.98
Large-Cap Core Funds S&P 500 70.73 81.29 91.74 96.57 91.81
Large-Cap Value Funds S&P 500 Value 70.72 67.28 84.74 88.85 79.89
Mid-Cap Growth Funds S&P MidCap 400 Growth 12.00 20.86 45.45 79.81 86.93
Mid-Cap Core Funds S&P MidCap 400 43.90 66.94 83.19 91.61 95.15
Mid-Cap Value Funds S&P MidCap 400 Value 66.04 89.29 92.31 92.98 92.00
Small-Cap Growth Funds S&P SmallCap 600 Growth 15.25 30.43 59.16 83.77 92.50
Small-Cap Core Funds S&P SmallCap 600 40.15 76.13 92.27 96.77 93.90
Small-Cap Value Funds S&P SmallCap 600 Value 60.22 81.98 90.57 97.14 86.84
Multi-Cap Growth Funds S&P Composite 1500 Growth 54.49 63.18 79.78 90.43 90.44
Multi-Cap Core Funds S&P Composite 1500 82.17 84.52 96.00 94.26 92.08
Multi-Cap Value Funds S&P Composite 1500 Value 90.99 72.97 91.35 91.33 85.19
Real Estate Funds S&P United States REIT 60.00 54.12 66.67 84.78 83.33

The same basic patter developed in foreign markets. The table below, which was also compiled based on information included in the latest SPIVA report, found that more than 90% of international fund managers fell behind their respective S&P benchmark. Active stock pickers in emerging markets didn't fare any better. International small-cap managers, another asset class that supporters of active management claim to holding increased opportunities for outperformance, were also clearly beaten by a large margin -- 73.33% failed to overcome their respective S&P index. 

Percentage of International Equity Funds Outperformed by Benchmarks
15 Years (As of 6/30/2019)
Global Funds S&P Global 1200 67.98 69.26 77.13 79.71 81.91
International Funds S&P 700 71.75 83.78 74.23 81.56 90.21
International Small-Cap Funds S&P Developed Ex-U.S. SmallCap 63.86 60.26 62.71 66.67 73.33
Emerging Markets Funds S&P/IFCI Composite 54.98 79.06 83.10 77.87 94.34

Like other SPIVA reports before it, this mid-year 2019 scorecard reveals a tendency for active managers to fare relatively poorly in fixed-income. The table below from such mid-year research reveals that active fund managers lagged over this 15-year period regardless of durations (short-, intermediate- and long-termed) and across government, investment-grade, high-yield (i.e., junk), mortgage-backed securities and emerging markets. 

Percentage of Fixed Income Funds Outperformed by Benchmarks
15 Years (As of 6/30/2019)
Government Long Funds Bloomberg Barclays US Government Long 100.00 76.79 98.31 98.73 98.00
Government Intermediate Funds Bloomberg Barclays US Government Intermediate 94.12 89.47 85.71 85.29 91.07
Government Short Funds Bloomberg Barclays US 91.67 84.00 82.14 69.70 82.86
Investment-Grade Long Funds Bloomberg Barclays US Government/Credit Long  97.65 72.04 98.91 95.97 97.50
Investment-Grade Intermediate     Bloomberg Barclays US  50.50 39.90 55.50 51.65 72.68
Investment-Grade Short Funds Bloomberg Barclays US Government/Credit (1-3 Year)  83.87 37.50 62.12 41.27 68.00
High Yield Funds Bloomberg Barclays US  82.91 91.94 95.59 95.98 99.15
Mortgage-Backed Securities Bloomberg Barclays US Aggregate Securitized-MBS 84.31 71.70 81.13 66.07 95.74
Global Income Funds Bloomberg Barclays Global 44.12 33.64 59.48 51.85 61.11
Emerging Markets Debt Funds Bloomberg Barclays Emerging Markets 79.63 66.67 96.15 100.00 85.71
General Municipal Debt Funds S&P National AMT-Free 82.67 69.14 58.75 50.65 86.67
California Municipal Debt Funds S&P California AMT-Free  66.67 61.11 33.33 45.95 82.61
New York Municipal Debt Funds S&P New York AMT-Free 80.00 74.07 53.57 56.25 86.84
Loan Participation Funds S&P/LSTA U.S. Leveraged Loan 100 100.00 85.71 68.09 78.95 --

Despite a decade-long rise in popularity of indexing, many investors keep looking for top active managers who can defy such overwhelming odds as made evident by this latest SPIVA report. In our view, such an analysis illustrates that a vast majority of stock jockeys don't outperform their respective benchmarks across multiple periods and asset classes. 

A key reason why we follow this research series is due to its rigorous methodology. Analysts involved in such a series scrub performance data sets for two common ways that active management employs to blur any such statistical comparisons -- survivorship bias and style consistency. 

Besides obscuring longer-term data suggesting their dismal record of outperformance, such S&P research doesn't let active managers hide liquidated or merged fund data. It also tries to look behind the curtains of those active managers who don't maintain a consistent style or remain in the highest quartile of performers. 

The clear takeaway from this mid-year 2019 S&P study for fund investors is that the odds of catching a long-term active winner are slim at best. A better approach for a successful investment experience is to buy, hold and rebalance a globally diversified portfolio of index funds.


  1. Morningstar U.S. Fund Flows report for September, Kevin McDevitt, Oct. 18, 2019.  

  2. The Wall Street Journal, "Wall Street Brokers Missed the Index-Funds Memo," Oct. 6, 2019. 

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