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Study Puts Another Nail in Active Management’s Coffin

An ongoing debate among investors is whether an active or passive strategy is most likely to give you the best results. Twice a year, Standard & Poor’s releases their active vs passive score card (officially called the S&P Indices Versus Active Fund report, or SPIVA for short.) The analysis compares actively managed funds against S&P index benchmarks, or put simply, different asset classes of active funds are pitted against their respective passive counterparts.

The SPIVA is important to investors because it shows that the past is not prologue. Investors cannot use past performance to identify which of the active funds will outperform in the future. Outperformance should be randomly expected, and the SPIVA shows why. Despite active managers claiming they can beat benchmarks, the data tell a different story. Today we’ll report on some of the key findings from S&P’s latest study.

First, S&P looked at the individual years covering the 10-year period 2004-13. They then took the average figure of the outperformance by the benchmarks for each of the 10 individual years. They found that in every domestic equity asset class, the majority of actively managed funds underperformed their appropriate index benchmark. The best performance was for actively managed large-cap growth funds, in which “just” 57 percent underperformed.

Read the rest of the article at CBS Money Watch.

 

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