Generally, retail investors pay higher fees for active management that institutional investors, so there’s been some question about whether institutional active managers might be able to outperform passive when fees are taken out of the equation.

A new study pours cold water on that theory and shows that institutional active managers are not faring much better than their mutual fund counterparts—and thus fees are not responsible for active management’s outperformance.

For example, 73% of institutional large-cap managers underperfomed the S&P 500 before fees were taken into account in the decade ending December 31, 2018, while 78% of large-cap mutual fund managers did, according to the latest SPIVA Institutional Scorecard, where S&P Dow Jones Indices asks “How Much Do Fees Affect the Active Versus Passive Debate?”

Even after fees are taken into account, the authors note, institutional large-cap managers underperformed their passive benchmarks 85% of the time over the same 10-year period. Looking down the market capitalization spectrum, institutional managers fared even worse—even after fees. Active mid-cap managers underperformed their passive benchmark at an 88% clip during the decade, while small-cap managers underperformed more than 85% of the time, net of fees.

The results suggest that even with the purported higher overall quality and lower fees of institutional funds, active managers struggle to beat their passive indexes across most fund categories, particularly in equities.

Even with the rather large spike in volatility toward the end of 2018, it was a difficult year for institutional equity managers, according to the study’s authors, with most managers across most equity categories underperforming their benchmarks before fees.

The most egregious equity underperformance in 2018 occurred in international, small-cap core and mid-cap value institutional funds. In these categories, roughly two-thirds of active managers underperformed their passive benchmarks.

On the other hand, institutional managers in mid-cap growth, all mid-cap and large-cap value funds fared better, with more than half in each category beating their passive benchmarks. In fact, more than 81% of mid-cap growth managers outperformed the S&P MidCap 400 Growth index last year.

Institutional fixed-income managers also posted much better results than their equity peers, with a majority of managers outperforming passive benchmarks in 11 of 18 categories. Municipal bond managers ended 2018 on a high note, with more than 89% of them outperforming their passive benchmarks.

Looking back to the authors’ 10-year time horizon, majorities of active institutional managers underperformed their active benchmarks in all but one category: international small-cap funds.

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