Exchange traded funds that try to passively reflect the performance of an underlying index are looking more attractive to the average investor as actively managed mutual funds underperform benchmarks.
According to the mid-year 2013 S&P Indices Versus Active Funds (SPIVA) Scorecard, most active equity managers in all categories, except small-cap growth, underperformed their benchmarks in the past 12 months and the majority of active funds with foreign exposure underperformed over the last five years. [Three Reasons Why Investors Like ETFs]
In the 12 months ended June 30, 59.6% of large-cap funds, 68.9% of mid-cap funds and 64.3% of small-cap funds underperformed their benchmark indices. The figures are also similar for active funds over the past three- and five-years. Performance for all domestic equity fund categories fell behind benchmarks in the past three- and five-years as well. [ETF 101: Benefits and Considerations]
Looking at international equities, 62.6% of global funds, 65.9% of international funds and 74.5% of emerging market funds underperformed benchmarks over the past five years, with the exception of international small-cap funds that have typically outperformed.
Active fixed-income funds outperformed benchmarks over the past 12 months ended June 30, but most are still falling behind over the long-term five-year period.