The ongoing debate of index vs. active investing may never be settled, but research shows that passive investing is a sound strategy. In fact, during a five-year period, three-fourths of managers at over 2,900 funds failed to meet comparable benchmarks in their fund categories. Although data indicates that active management performance does improve over time, experts say subpar returns should have investors taking a closer look at the funds they chose and what they’re getting for their money.
According to the 10th anniversary “S&P Indices Versus Active Funds [SPIVA] Report Card,” the overwhelming majority of active equity and bond fund managers lag comparable benchmarks. It has been the case not just over the past year but cumulatively over the past five years. Jamie Farmer, managing director at S&P Dow Jones Indices, says it reiterates and confirms the growing view that consumers need to carefully weigh when the cost and value of paying for active management. Although active management certainly has its uses and benefits, the numbers show that indexing remains a sound overall investment strategy.
For all domestic equity funds, 89% of managers failed to beat the S&P Composite 1500 index over a one-year period. The worst performance against benchmarks was in large-cap growth funds. When weighed against the S&P 500 Growth Index, 94% of funds failed to meet or beat that benchmark. Over three years, 86% of funds failed to beat it, and the figure dropped to 82% over the five-year period.
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