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Active Management Funds Underperform Over Almost All Time Frames: S&P Study

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According to recent and historical data from Dow Jones S&P Indices, the large majority of actively managed funds did not beat their benchmark indices over time periods ranging from one year to 10 years. Dow Jones S&P Indices recently published their U.S. SPIVA Scorecard, and the report detailed the underperformance of active management versus index funds across all time periods.

It should be noted that a few active managers that do outperform their benchmarks every year, and, moreover, there are a few active management funds that have long-term returns above their benchmark indices, but more than three out of four actively managed funds cannot keep up with their benchmarks for one year, never mind a decade.

Active management large cap fund 2014 performance

Of note, the S&P 500 continued on a tear in 2014, returning 13.69% (and returns were 32.39% in 2013 and 16% in 2012). The SPIVA Scorecard highlights that as of December 31, 2014, 86.44% of large-cap fund managers had underperformed the index over a one-year period. Things didn’t get much better when viewed over the longer term.  Over a five-year period, 88.65% of large cap managers did not match the benchmark, and 82.07% of large-cap managers could not produce incremental returns equal to the index.

Active Management Funds

Active Management Funds

Mid cap fund performance

The scorecard noted that mid cap fund managers performed a little better this year, as only 66.23% did not equal the performance of the S&P MidCap 400. Moreover, 72.92% of small cap managers lagged the S&P SmallCap 600, respectively, on a one-year basis. Much like the large-cap funds, the large majority of mid and small cap fund managers also underperformed their benchmarks over the longer term.

Active Management Funds

Small cap fund performance

The SPIVA Scorecard also highlights the commonly cited investment maxim that active management performs best in “inefficient environments”, in particular, small-cap or emerging markets. However, this truism is contradicted by the results of the scorecard. The data clearly shows that the overwhelming majority of small-cap active managers have been underperformed the benchmark over the full 10-year period as well as during each rolling 5-year period, with data going all the way back to 2002.

Active Management Funds

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