With two decades of data in the bag, the S&P Dow Jones Indices (S&PDJI) benchmark gauge, SPIVA, remains firmly pointing to passive.
A new note from SPIVA, an acronym of ‘S&P Indices Versus Active’, says nothing much has changed in 20 years.
“Most active managers underperform most of the time,” Craig Lazzara, S&PDJI core product managing director, says in a result repeated before-fees, post-fees, risk-adjusted and for institutions.
“The tendency for underperformance typically rises as the observation period lengthens,” Lazzara says.
And even when active managers hit a patch of outperformance “it tends not to persist”.
“Above-average past performance does not predict above-average future performance,” he says.
But the 12 months to June 2022 offered some respite for active managers in the SPIVA data with Canadian funds recording their brightest one-year period of outperformance in almost 10 years.
Amid a bout of higher volatility during the 12-month stretch, active managers overall did fare better than in previous years, although only to the extent that a “smaller majority underperformed the appropriate benchmark”, the SPIVA note says.
UK large-to-mid-cap active managers, however, tanked over the 12 months to June 30 with a record-breaking 98 per cent underperforming respective benchmarks.
Between 80-90 per cent of US growth managers also underperformed during the first half of 2022 despite a slump in the broad index that historically has favoured active management, the note says.
Tim Edwards, S&PDJI global head of index investment strategy, says the “fact that so few growth managers outperformed might be a consequence of increasing concentration and conviction in the space: put simply, they were caught chasing extremes of performance in the most glamorous names just as the growth/value cycle turned”.
“… There have been, and perhaps will be again, years when a majority of actively managed U.S. equity funds outperformed the S&P 500,” Edwards says. “We’ll report it when they do.”
SPIVA originally covered only US equity markets but has since expanded its coverage to nine different regions and over 100 different active management categories as well as some fixed income sectors.
Edwards says following S&P’s US$44 billion buyout of financial data firm IHS Markit in 2020, the group now had access to wider global fixed income information to feed into SPIVA studies. The active-passive comparator may also tackle multi-asset managers in the future.
The SPIVA reports might be the most recent high-profile data weapons in the passive investment arsenal but Lazzara gives a nod to the original active-basher study produced in 1933 by US economist, Alfred Cowles III.
“Its conclusion would sound familiar to any reader of our current SPIVA reports: ‘Statistical tests of the best individual records failed to demonstrate that they exhibited skill, and indicated that they more probably were results of chance’,” he says.