So Alpha is a Myth? A Mix of Skepticism and Conviction on our Passive vs Active Research

I recently moderated a global webinar for financial advisors on the topic of S&P DJI research on passive versus active investing.  Presenters on the webinar included Aye Soe, our Head of Global Research & Design, Rick Ferri, Founder and Managing Partner of Portfolio Solutions, and Antoine Lesne, Head of ETF Sales Strategy in EMEA for State Street Global Advisors.  Aye is the author of the U.S.-focused SPIVA® (S&P Indices Versus Active) research.  Rick’s firm is a registered investment advisor (RIA) with over $USD 1.4 billion in assets under management, and the firm uses ETFs (index- tracker funds) and indexed mutual funds for asset allocation.  Antoine described the growing adoption of indexing in Europe and talked about how and why this is happening.  In case you missed it, the webinar replay is available on

Some of the questions we received during the webinar were from audience members who were skeptical of our research.  Other comments and questions showed conviction, including the question, “So alpha is a myth?”  Some advisors we meet with state that part of their value proposition as financial advisors and wealth managers is selecting good managers for their clients.  So our research, combined with  Rick and Antoine’s comments and analysis detailing how hard it has been for managed mutual funds to beat index benchmarks, may be perceived by some as questioning the industry’s business practice.

Critical questions we received asked why we don’t address the reason index funds and ETFs also underperform the benchmark indices.  One would generally expect them to underperform, since index funds have management costs that an index does not. Many of the questions sought to clarify how we address costs in our research and I have asked our panelists to help me cover these answers.  You can read some of those questions and our panelist answers in the next post I write.  We saw the highest degree of conviction from our audience in the 10-year findings from our latest SPIVA report, one example of which I have shown below.  To interpret this Exhibit, using the first line example, we see that 89.52% of active mutual funds with a 10-year track record and following a large cap growth strategy failed to outperform the S&P 500 Growth (the benchmark index for the group) over the same 10-year measurement period.

This webinar attracted a global audience.  Appropriately, Antoine Lesne and Aye Soe both spoke about how our SPIVA results, now calculated for several countries and for Europe, increasingly underpin a global trend towards indexing.  Our research and research from State Street Global Advisors which Antoine shared indicate that active managers have a hard time beating index benchmarks regardless of where in the world they are domiciled.

This article was written by Shaun Wurzbach, global head of financial advisor channel management, S&P Dow Jones Indices.

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