The S&P Indices Versus Active (“SPIVA”) report came out today with its semi-annual update as of June 30, 2019. Perhaps to no one’s surprise, the trends uncovered from the SPIVA reporting over the last 17 years have continued.
As reported by SPIVA, “For the one-year period ended in June 2019, 71% of domestic equity funds underperformed the S&P Composite 1500, slightly more than the previous report’s 69%.” However, in a turn for the better, over this same time horizon most mid- and small-growth managers beat their respective benchmarks with 88% and 85% scores, respectively. However, the authors point to a potential problem in the data that they termed “size creep”, where small- and mid-cap managers have resorted to buy large-cap securities to help boost returns (something the indexes do not do).
Over longer term horizons including 5-, 10-, and 15-years, the results have barely budged with over 80% of active managers underperforming their benchmarks.
Likewise, fixed income investing was no exception. The report said, “The majority of fixed income active funds underperformed their benchmarks with global income funds (at 44%) the lone exception.” Also, aside from Investment-grade Intermediate funds with a 50.5% score, the balance of the taxable categories logged scores of over 80% underperfomance. This seems to defy the notion that active bond managers have a better chance at outperforming their indices since their market is more diverse and opaque and more suited to better positioning than a naive cap-weighted index.