Actively managed mutual funds have been a staple for many investment portfolios, but their performances have not been consistent. Instead, investors wary of less reliable options may look to passive, index-based exchange traded funds that deliver what they promise to do.
According to the latest S&P Dow Jones Indices’ SPIVA U.S. scorecard for mid-year 2017, 56.6% of large-cap active managers underperformed the S&P 500 at over the year ended June 2017, while 60.7% of mid-cap managers underperformed the S&P MidCap 400 and 59.6% of small-cap managers underperformed the S&P SmallCap 600.
In the 12-month period ended June 30, growth has been a standout play as many growth-oriented companies rallied post-election. Consequently, growth managers across all three market cap ranges fared better than their core and value counterparts.
“The results highlight the cyclicality of style managers, as core managers fared the best six months prior with the exception of small caps, while value managers outperformed both core and growth one year prior,” Aye M. Soe, Managing Director of Global Research & Design, and Ryan Poirier, Senior Analyst of Global Research & Design, said a S&P Dow Jones Indices research note.
Even with these numbers, the year ended June 2017 was seen as a relatively better period for active managers, which is not saying much for the overall actively managed fund segment as most managers underperformed widely observed benchmarks over time.
Looking at the longer five-year period, 82.4% of large-cap managers, 87.2% of mid-cap managers and 93.8% of small-cap managers have underperformed their respective benchmarks. The numbers were even worse over the past 15-year period as 93.2% of large-cap managers, 94.4% of mid-cap managers and 94.4% of small-cap managers failed to outperform on a relative basis.
As investors consider the various fund options when filling out a well-rounded investment portfolio, it is important to consider factors that can contribute to consistent returns over the long haul. Looking at the actively managed fund market, investors may find high management fees, coupled with manager-specific investment styles, could cause an active fund to underperform widely observed benchmarks, especially if a manager follows a specific style that may perform well over the short-term when certain conditions are met, such as the recent outperformance in the growth style.
Alternatively, investors may find consistent returns with widely observed benchmarks through a cheap beta-index or passive exchange traded fund that simply tries to reflect the performance of an underlying benchmark.
For more information on the ETF market, visit our ETF performance reports category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.