SPIVA: Passive Reigns As Of First-Half 2012
October 01, 2012
Nearly all actively managed U.S. equity mutual funds underperformed their benchmarks in the 12 months ended June 30, a particularly extreme example of the typical outcome in the ongoing debate between active and passive investing, according to a report Standard & Poor's releases twice a year.
The Standard & Poor's Indices Versus Active Funds Scorecard for the six months ended June 30 also showed most active fixed-income funds underperforming their benchmarks, though managers of short-dated government debt did manage to best their indexes in each of the one-, three- and five-year sampling periods.
The latest SPIVA report, showing almost 90 percent of all U.S. equities funds failed to beat their benchmarks in the rolling 12 months ended June 30, rubber-stamps the historical trend in a big way. For most of the last decade, active management has underperformed in most stock and bond asset classes, with only a handful of managers beating their benchmark.
The only time in recent history when many active investors fared much better than their benchmarks was when markets were in upheaval following the market crash of 2008-2009. Apart from in 2009, the last year active management fared better was in 2000. In 2009, just 41.67 percent of active managers failed to beat their indexes, and in 2000, 40.5 percent didn't do so, meaning a majority did.
Results were strong for passive funds in the 12 months ended June 30. Passive funds usually fare better than active over longer time periods. As noted, about 90 percent of all active equities funds didn't beat their benchmarks in the year ended in June. In three- and five-year periods, the portion of active funds that didn't beat their benchmarks fell to about three-quarters and two-thirds, respectively.
The outperformance for passive funds was a bit less pronounced on an asset-weighted basis, which confines active versus passive comparisons to funds of similar sizes.
Average Performance Of Selected US Equity Funds On Asset-Weighted Basis
Source: S&P Dow Jones Indices
Short-Dated Bond Managers Shine
Active bond managers focused on the short end of the yield curve did far better than their counterparts focused on equities and other pockets of the bond markets.
Only 40 percent of active short-term government bond fund managers were outperformed by their benchmarks in the one-year and five-year samplings.
However, that number rose to 62 percent in the five-year period—an outcome that's consistent with the way the SPIVA data series often shakes out over time.
Another segment of the fixed-income space that saw active managers shine was in municipal bonds, and to a lesser degree, in mortgage-backed securities.
SPIVA showed that only 38 percent of active managers were outperformed by their benchmark in the general municipal debt category; in other words, roughly six out of 10 managers outperformed the broad muni market as measured by the S&P National AMT-Free Municipal Bond Index.
Meanwhile, only 44 percent of managers were beaten by their mortgage-backed securities benchmark in the past year.
Average Performance Of Selected US Fixed-Income Funds On Asset-Weighted Basis
Source: S&P Dow Jones Indices
Percentage Of US Equity And Fixed-Income Funds Outperformed By Their Benchmarks*
Source: S&P Dow Jones Indices; *Based on equal-weighted fund counts