Passive Management Extends its Winning Streak Over Active Investing

Score another year for passive management as it extends its winning streak against active investing in 2019 in terms of gains. This now marks the 10th year in a row that passive management has outperformed its active counterpart.

“Last year, the S&P 500 Index, the benchmark for U.S. Large-cap stocks, posted an absolute return of 31.5%. This was the index’s second-highest annual return since 2001 and its fourth-highest annual gain in 30 years. Mid-caps and small-cap stocks also had strong years. The S&P MidCap 400 Index surged 26.2% and the S&P SmallCap 600 Index returned 22.8%,” wrote Lawrence Carrel in Forbes.

It wasn’t all underperformance news for active management, however. In terms of absolute returns, active management was excellent in that regard.

“With 2019 being a remarkable year for equities, active fund managers posted “excellent absolute returns”, yet the majority were still unable to beat their benchmarks,” Carrel wrote. “Among all domestic equity funds 70% lagged the S&P Composite 1500, making it the fourth-worst performance since 2001, according to the S&P Indices Versus Active Scorecard, known as the SPIVA. The SPIVA measures the performance of actively-managed US equity and fixed-income funds against their relevant S&P DJI benchmarks. The latest report card covers the year ended Dec. 31, 2019, and not the last three months.”

“Large-cap fund managers upheld their annual tradition and made it a clean 10-year sweep with 71% underperforming the S&P 500,” Carrel added.

That said, as large caps continue their reign in equity funds, for investors looking for continued upside in large cap equities over small caps, the Direxion Russell Large Over Small Cap ETF (NYSEArca: RWLS) offers them the ability to benefit not only from large cap equities potentially performing well but from their outperformance compared to their small cap brethren.

RWLS Fund Facts:

  • The Russell 1000®/Russell 2000® 150/50 Net Spread Index (R1R2NC) measures the performance of a portfolio that has 150% long exposure to the Russell 1000® Index (the “Long Component”) and 50% short exposure to the Russell 2000® Index (the “Short Component”).
  • On a monthly basis, the Index will rebalance such that the weight of the Long Component is equal to 150% and the weight of the Short Component is equal to 50% of the Index value.
  • In tracking the Index, the Fund seeks to provide a vehicle for investors looking to efficiently express a large-capitalization over small-capitalization investment view by overweighting exposure to the Long Component and shorting exposure to the Short Component.

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