The majority of actively managed large-cap managers are underperforming the benchmark S&P 500, adding fuel to the benefits of passively managed, index-based exchange traded funds.
As of June 30, 2015, the SPIVA, or S&P Indices Versus Active, U.S. Scorecard data reveals that 65.3% of large-cap managers underperformed the benchmark S&P 500 index over the past one-year period, writes Aye M. Soe, Senior Director of Index Research & Design for S&P Dow Jones Indices.
The underperformance is even worse when taking a longer point of view. Over the past five- and 10-years, 80.8% and 79.6% of large-cap managers, respectively, failed to outperform the benchmark.
Investors interested in an easy way to track the S&P 500 have a number of options available, including the SPDR S&P 500 ETF (NYSEArca: SPY), iShares Core S&P 500 ETF (NYSEArca: IVV) and Vanguard 500 Index (NYSEArca: VOO).
Mid-cap managers fared slightly better over the one-year period ended June, with 48.2% failing to beat the S&P MidCap 400 Index. Meanwhile, 58.5% of active small-cap funds still fell behind their benchmark.
However, over the longer five- and 10-year periods, the majority of actively managed mid- and small-cap funds underperformed their respective benchmarks, according to S&P Dow Jones Indices.
Alternatively, for mid-cap exposure, investors can take a look at passively managed ETF options, like the iShares Core S&P Mid-Cap ETF (NYSEArca: IJH), SPDR S&P MidCap 400 ETF (NYSEArca: MDY) and Vanguard Mid-Cap ETF (NYSEArca: VO). IJH and MDY try to track the S&P MidCap 400 Index. VO follows the CRSP US Mid Cap Index.
Additionally, the iShares Core S&P Small-Cap ETF (NYSEArca: IJR), Vanguard Small Cap ETF (NYSEArca: VB) and iShares Russell 2000 ETF (NYSEArca: IWM) are some broad small-cap options. IJR tries to reflect the performance of the S&P SmllCap 600 Index. VB tracks the CRSP US Small Cap Index. Lastly, IWM follows the widely observed Russell 2000 Index.
While many believe that active management may work or outperform in inefficient markets, like small-cap or emerging markets, the SPIVA report disputes that claim – the majority of small-cap active managers consistently underperformed benchmarks in both the 10-year and each rolling five-year period since 2002, Soe said.
For more information on the fund industry, visit our mutual funds category.
Max Chen contributed to this article.