In a recent article in ETF.com, BAM Alliance director of research Larry Swedroe debates claims that active management is the “winning strategy” in emerging markets.
Citing SPIVA and Morningstar data as well as academic research, Swedroe makes the case that, “at least for investors who do not have access to institutional EM funds, active management is a loser’s game.”
For example, writes Swedroe, SPIVA data shows that for the last 5-, 10- and 15-year periods, 78%, 85% and 95% of actively managed, publicly available EM mutual funds underperformed their benchmarks. Some Morningstar data, he adds, contains survivorship bias [the tendency to view fund performance of existing funds in the market as a representative sample, which can result in the overestimation of historical performance].
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Swedroe warns investors to be skeptical “whenever you hear claims of active mangers as a group outperforming in any asset class.” He adds, “I’d suggest making sure any data presented is free of survivorship bias and appropriately adjusted for risk (exposure to common factors), so you actually have an apples-to-apples comparison.
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