Benchmarks Outdo Active Managers over Market Cycle

The year-end 2008 results for the Standard & Poor’s Index Versus Active Fund Scorecard (SPIVA) indicate that, over the five-year market cycle from 2004 to 2008, the S&P 500 outperformed 71.9% of actively managed large cap funds, the S&P MidCap 400 outperformed 75.9% of mid cap funds, and the S&P SmallCap 600 outperformed 85.5% of small cap funds. According to an S&P news release, these results are similar to that of the previous five-year cycle from 1999 to 2003.

SPIVA results are similar for international equity and fixed income funds, the announcement said. Benchmark indexes outperformed a majority of actively managed fixed income funds in all categories over a five-year horizon. The five-year benchmark relative shortfall ranged from 2% – 3% annually for municipal bond funds to 1% – 5% annually for investment grade bond funds.

Among international equity funds, indexes outperformed a majority of actively managed non-U.S. equity funds over the past five years in the four categories studied, including emerging market funds.

“The belief that bear markets strongly favor active management is a myth,” says Srikant Dash, Global Head of Research & Design at Standard & Poor’s, in the announcement. “A majority of active funds in each of the nine domestic equity style boxes were outperformed by indices during the down markets of 2008. The bear market of 2000 to 2002 showed similar outcomes.”

The year-end results are available here.