[GRTV] 98% of active funds fail to outperform
[WATCH] ETFs continue their rapid growth as active funds fail to beat their benchmarks.
Thursday, March 23rd 2023, 8:14AM 
4 Comments
S&P Dow Jones head of index Tim Edwards says over 30 years 98% of actively managed funds either failed to survive or survived but did not beat their relevant benchmarks.
S&P publish SPIVA, an annual report tracking how well actively managed funds perform against their appropriate benchmarks.
Edwards, who was in New Zealand recently, said that in most markets most of the time, managers failed to outperform.
Those that did manage to outperform were not the same ones each time.
There is very little evidence of persistency over the three to five year time horizon, Edwards told Good Returns TV.
He also noted there was "quite high" attrition rates amongst actively managed funds.
For more on active v passive investment watch the video.
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Equally, index funds can and do outperform - on a gross fund return vs gross benchmark return. e.g. Kernel Global 100 is gross 0.14% ahead of the benchmark, before fees, for the 12 months.
I believe the results would be overwhelming that on a risk-adjusted basis, some active managers are not adding significant value, or enough value to justify the additional risk they take to generate alpha.
It would also be good to run stats to show how much of the alpha (if any) was luck or good management.
Sometimes due to sampling/optimisation (i.e. not buying everything), sometimes due to favourable tax relative to the index (which always assumes the worst), sometimes due to 'efficient' portfolio management techniques (sec lending, clever trading, front-running index changes etc.).
Re: SPIVA, no doubt great global reports. Have done several events with Tim over the years and he is excellent.
The beef with SPIVA, if there is one, is that they use S&P only indices. So they are comparing results of funds managed vs. say, the MSCI ACWI, vs. their global index, say the S&P Global BMI... or the S&P UK Index when everyone uses the FTSE 100 or All Shares.
This is all at the margins, though... that retail mutual funds in the aggregate find if tough to outperform indices/passive alternative after fees... this is surely beyond question. That does not mean that there aren't managers who have added value...
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If we break down the circa 122,000 active funds into styles etc, it’s easy to understand why up to 85% of them don’t perform at different stages of the investment cycle - but then it’s easier to overlook this fact (which requires effort).