Mid- and Small-Cap Funds Still Lag Indexes Through Third Quarter

Actively managed mid- and small-cap mutual funds continued to underperform their relative Standard & Poor’s benchmarks through the first nine months of 2005, where as most large-cap portfolios finished ahead of their respective indices, according to data from Standard & Poor’s Indices Versus Active Funds (SPIVA) Scorecard.

The SPIVA data showed that 55.8% of large-cap funds beat the S&P 500 Index through the first three quarters of the year. By contrast, the S&P MidCap 400 Index outperformed 72.1% of mid-cap funds, which means that only 27.9% of mid-cap portfolios beat their bogeys. Also, the S&P SmallCap 600 Index outpaced 72.3% of small-cap funds during the the first three quarters of 2005.

“In 2005, energy, utilities and real estate issues led market returns,” says Rosanne Pane, Mutual Fund Strategist at Standard & Poor’s. “Actively managed large-cap funds benefited from their overweight in those segments relative to the S&P 500.”

The SPIVA report also found longer-term results continue to highlight the superiority of indices over actively-managed funds. Over the past three years, the S&P 500 has outperformed 69.4% of large-cap funds, the S&P MidCap 400 has beaten 69.1% of mid-cap funds, and the S&P SmallCap 600 did better than 71.7% of small-cap funds.

Over the past five years, the S&P 500 has outperformed 63.6% of large-cap funds, the S&P MidCap 400 outpaced 77.5% of mid-cap funds, and the S&P SmallCap 600 beat 75.1% of small-cap funds.

“Over longer time horizons, we continue to observe indices outperforming a majority of active funds across most style boxes,” says Srikant Dash, Index Strategist at Standard & Poor’s. “We typically see indices beating at least 60% of active managers over five year horizons.”