The latest scorecard on actively managed funds from S&P Dow Jones Indices reveals another key variable that advisors should consider when choosing between actively managed and passively managed mutual funds and ETFs: a fund’s survival rate.
In addition to the fact that few actively managed equity funds outperform their benchmark over the long term, only about 40% survived for 15 years and about 57% survived for 10 years, according to the analysis, know as the SPIVA Scorecard, which is based on data through Dec. 31, 2016. The funds were either liquidated or merged with another fund, usually due to poor performance.
The lesson for advisors: “Know what you’re getting into when you want to pick a fund manager today,” said Ryan Poirier, a senior analyst who, along with managing director Aye Soe, compiled the report. “There’s probably a good chance the fund won’t be around for the long term.”
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Among U.S. equity funds, growth funds are more likely to disappear than value funds and within that broad category large-cap and mid-cap appear to be most vulnerable, though small-cap growth funds didn’t fare much better. Just 27% of large-cap growth funds survived over 15 years while 48% survived over 10 years. In the mid-cap category the comparable figures are 37% and 47% and in small cap 42% and 53%.
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International equity funds and global equity funds (global funds invest in U.S. and foreign equities) fared much better than their U.S. counterparts over the 10-year period, with survival rates just above 60%. Over the 15-year period, however, only 38% of global funds and 43% of international funds survived.
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