Over the past few weeks, as we’ve traveled around the country visiting with advisors, a few common themes have arisen. First, we’ve seen great frustration associated with trying to make sense of the artificial environment that has been created by central bankers around the globe. Second, we’ve seen a similar level of exasperation over the inability of active managers to make sense of the artificial environment that has been created by central bankers around the globe — hmm.
According to Morningstar, as of Sept. 30, actively managed mutual funds experienced outflows of approximately $304 billion over the trailing 12-month period, while passively managed funds and ETFs brought in $437 billion. That is quite a shift.
Indeed, it has been a tough stretch for active management. Data from S&P Indices Versus Active (SPIVA) reports indicates that through June of this year, 81% of domestic large-cap equity funds, 84% of mid-cap funds and 94% of small-cap funds underperformed their respective benchmarks over the past three years.
While active management is always a difficult proposition (and alpha generation as opposed to straight outperformance is always a zero-sum game even before fees), the playing field shifts over time, with certain environments being more conducive than others for skilled practitioners.
The SPIVA mid-year report in 2011 showed that 64% of large-cap, 75% of mid-cap and 63% of small-cap funds underperformed their benchmarks. Still large percentages to be sure, but the differential in those metrics five years ago versus where we sit today is eye opening.