April 20, 2009

S&P: Indices repeatedly outperform actively managed funds

"The belief that bear markets strongly favor active management is a myth," says Srikant Dash, global head of research and design at Standard & Poor's. S&P Index Services released the year-end 2008 results for its Standard & Poor's Index Versus Active Fund Scorecard (SPIVA) Monday.

According to findings, over the five-year market cycle from 2004 to 2008, the SPIVA scorecard shows that the S&P 500 outperformed 71.9 percent of actively managed large-cap funds, the S&P MidCap 400 outperformed 75.9 percent of mid-cap funds, and the S&P SmallCap 600 outperformed 85.5 percent of small cap funds. These results are similar to that of the previous five-year cycle from 1999 to 2003.

"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," Dash says.

SPIVA results show similar results for international equity and fixed income funds. 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 percent to 3 percent per annum for municipal bond funds to 1 percent to 5 percent per annum for investment grade bond funds. Among international equity funds, indices 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 SPIVA Scorecard is produced semi-annually, and can be accessed in its entirety at www.spiva.standardandpoors.com.

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