SPIVA: ’18 Was One of the Worst Years for U.S. Equity Managers Since ’01

By ClearRock Research March 18, 2019 Insights

SPIVA“Passive” Vs. Active

Since 2002, S+P Dow Jones Indices produces the S+P Indices Versus Active (or “SPIVA”) Scorecard which measures the performance of actively managed funds against their relevant S+P index benchmarks.

This study continues to make the same point: most active managers do not beat their benchmark.  Moreover, managers that perform well in one period struggle to maintain their outperformance.

SPIVA Results Are In

5-year Fund Underperformance

Figure A. Percentage of US Large-Cap Equity Funds that underperformed the S&P 500 over the five years ending 12/31/18. Source: SPIVA

For the 9th consecutive year, the majority (64.5%) of large-cap funds underperformed the S+P 500. Similarly, 68.5% of all small-cap funds lagged their benchmark over the one-year horizon. In 2018, the S+P 500 finished with its first calendar-year loss in a decade (-4.4%), and 2018 was the fourth-worst year for U.S. equity managers since 2001.  This occurred despite predictions by the industry that increased market volatility would create an environment for active outperformance.

Repeat Success?

A sister report to SPIVA known as the Persistence Scorecard, shows the likelihood that a top-quartile manager maintains its status in subsequent periods. The results overwhelmingly convey that persistent outperformance is a formidable task. Of the 27% of funds that beat the S+P 500 over the previous 3 years on 9/30/15, only 2.73% of those managers were able to beat the S+P 500 for 3 more years.

Not Even with Luck?

According to S+P, 12.5% of those managers should have beaten the S+P 500 in the next 3 years by sheer luck. By continuing to try and beat the market, active managers collectively defied luck to the downside. What this means is that investing is really hard.  Expertly trained professionals with every resource imaginable at their fingertips struggle to beat the market with any consistency. It seems the only thing that is consistently working in their favor is the hard-to-justify high fees they charge clients to do something that so seldom works.

As we all know, past performance is not a predictor of future outcomes. One of the most common investor mistakes is chasing performance. In other words, expecting that a manager who has performed well one year will continue that track record into the future.  The annual SPIVA report proves otherwise.

At the core of our investment philosophy is the belief – supported by data including studies like the SPIVA Scorecard  – that most managers fail to beat their benchmark before fees.  Investing in a diversified portfolio using low-cost index funds such as ETFs is a more reliable way to build wealth over the long haul.



Please  remember  that  past  performance  may  not  be  indicative  of  future  results.  Different  types  of  investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this  newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s),  or be suitable for your portfolio. Due to various factors, including changing market conditions, the content  may no longer be reflective of current opinions or positions. Moreover, you should not assume that any  discussion or information contained in this newsletter serves as the receipt of, or as a substitute  for,  personalized  investment  advice  from  ClearRock  Capital,  LLC.  To  the  extent  that  a  reader  has  any  questions regarding the applicability of any specific issue discussed above to his/her individual situation,  he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current  written  disclosure  statement  discussing  our  advisory  services  and  fees  is  available  for  review  upon  request.


Author ClearRock Research

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