I’ve been a long-time SPIVA® fan. The first report was published about 13 years ago and it quickly became my go-to active management scorecard. No firm was comparing active manager performance to index benchmarks regularly. Advisers had to crunch data themselves to see the trends. SPIVA came to the rescue by doing the heaving lifting, and now does it globally.
The S&P Dow Jones SPIVA® U.S. Scorecard is published semi-annually. It’s some twenty pages of hard-hitting data on active manager performance versus comparable market benchmarks. The report is parsed into multiple tables covering different time periods and different asset classes, and is provided in both equal-weight and asset-weighted returns. There’s also information on survivorship bias and style consistency.
The SPIVA® U.S. Year-End 2014 report compares data going back 10 years. Actively managed mutual funds routinely underperformed the indexes they were trying to beat in every asset class and almost every style. There were only two areas in the global market where the average active manager outperformed over the previous 10 years, and they didn’t do it by much.
One possible takeaway from SPIVA is that it might make sense to use index funds in categories where managers have done poorly and use active management where they have done well. You may have heard something like this before: “Index the efficient asset classes and use active management in inefficient asset classes.” That may sound reasonable, but it’s wrong.
There are no inefficient asset classes; there are only messy active managers. Index constituents in a style are a pure play while actively managed portfolios look like a shotgun blast across a broad section of the market with most constituents falling in the style. This messiness causes active funds to outperform a style index when the style performs poorly relative to adjacent styles. It also causes active funds to underperform when a style significantly outperforms adjacent styles.