Growth Funds Beat Benchmarks in First Quarter

“So far in 2006 actively managed large-cap funds, which can invest in foreign companies, have benefited from international markets outperforming the U.S. market,” says Rosanne Pane, mutual fund strategist at Standard & Poor’s. “Active funds also benefited from overweight positions in leading sectors such as real estate, telecom services, energy and materials.”

Contrary to popular belief about the effectiveness of active management in the small-cap space, SPIVA found that active small-cap funds have had lower equal- and asset-weighted returns than the S&P SmallCap 600 index and its comparable growth and value sub-indices for the past three and five years. “The small-cap market is generally considered to be inefficient and favoring active fund management,” says Srikant Dash, index strategist at Standard & Poor’s. “Our results should provoke thought about the active versus passive issue in the small-cap space, particularly in the context of the large number of small-cap fund closings.”

SPIVA also showed that longer-term results are consistent with past results of index outperformance. Over the past three years, the S&P 500 has outperformed 61.9% of large-cap funds, the S&P MidCap 400 has outperformed 77.4% of mid-cap funds, and the S&P SmallCap 600 has outperformed 75.9% of small-cap funds. Over the past five years, the S&P 500 has outperformed 67.1% of large-cap funds, the S&P MidCap 400 has outperformed 87.3% of mid-cap funds, and the S&P SmallCap 600 has outperformed 78.7% of small-cap funds.

The complete year-end SPIVA scorecard, as well as previous quarterly SPIVA reports, is available on www.spiva.standardandpoors.com.

Percentage of Active Funds Outperformed by Relative Benchmark

Contact Bob Keane with questions or comments at: [email protected].