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Active funds underperform in bear markets

The majority of active American fund managers have underperformed benchmarks across all categories over the past five years, according to a report by Standard & Poor’s (S&P) Index Services.

Results for the Standard Poor’s Index Versus Active (Spiva) scorecard revealed that between 2004 and 2008, the S&P 500 outperformed 71.9% of actively managed large cap funds.

The report continues that the S&P MidCap 400 outperformed 75.9% of mid cap funds, while the S&P SmallCap 600 outperformed 85.5% of small cap funds.

S&P says these results are similar to the previous five-year cycle, which it says goes to prove that bear markets do not favour active management.

According to S&P’s records, the majority of active funds in each of the nine domestic equity style boxes underperformed their respective indices during the down markets of 2008. The bear market between 2000 and 2002 showed similar outcomes.

Spiva results show similar developments for international equity and fixed income funds. S&P says that benchmark indices outperformed a majority of actively managed fixed income funds in all categories over a five-year horizon.

Five-year benchmark relative shortfall ranged from 2% to 3% per year for municipal bond funds to 1% to 5% for investment grade bond funds. Among international equity funds, S&P says, indices outperformed a majority of actively managed non-American equity funds in the four categories studied, including emerging market funds.


Manager focus: David Gait

According to First State, sustainable investment has always been an integral part of the philosophy and stockpicking process of its Asia Pacific and emerging markets team. However, focusing on environmental, social and governance aspects has not meant compromising returns.The First State Asia Pacific Sustainability fund, for example, has outperformed its peer group. According to Trustnet, […]


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