Active Funds Had A Rough 15 Years (and That’s Putting It Nicely)

Today S&P released their SPIVA US Scorecard through the end of 2016.  For the first time ever, the SPIVA Scorecard, which presents data on what percentage of actively managed funds beat their benchmark, had data for the trailing 15 year period.  As implied by the headline, things didn’t look good (at all) for the actively managed funds (And Thats Putting It Nicely).

Over the course of the trailing 15 year period, the best performers among the active bunch were Large Cap Value Funds, in which just shy of 32% of them were able to bear the benchmark S&P 500 Value Index.  The worst performing category of active funds was Small Cap Growth, in which the benchmark S&P SmallCap 600 Growth index beat nearly 100% of them.  To make things even worse, once you consider the tax impact of the active funds, the passive indexes would beat even more of the funds.

What the SPIVA Scorecard, fails to reflect  however, is that you can select mutual funds that have characteristics which make them likely to outperform.  Mutual funds with lower expense ratios and/or funds with manager investment beyond $1 million, can increase your chances of selecting a mutual fund that will out perform.

Admittedly, while you can filter funds down to increase your odds of out-performance, the evidence is clear, it is very hard and extremely unlikely for any active manager to beat the market over a full market cycle.  Statistically speaking you’re better off in an index fund portfolio through Betterment.  But if you’re insistent on gambling with mutual funds, my ‘Guide to Selecting Alpha Mutual Funds‘, is a must read.

Related Readings:

Random mutual fund portfolios test from Betterment.

Where Are They Now?

Best-Performing Funds Over the Past 20 Years

Oct. 19, 1987, Black Monday produced the largest one-day percentage decline in stock market history. But for many buy-and-hold mutual fund investors, it proved to be little more than a relatively brief, albeit painful, bump along a path of long-term, annualized double-digit returns. The mutual fund world was a different place two decades ago.

Founder of a home service / specialty trade contracting company (think patio’s and deck) with a focus on customer experience. Quantitative investor. Data driven marketer. Runner.

Discuss this post with Corey Philip in the comments below