Active investing is mired in a lost decade, but the costs associated with fund and account managment has contributed to widespread underperformance.
In its second annual SPIVA Institutional Scorecard, New York-based S&P Dow Jones Indices found that active managers continue to underperform their benchmarks over a 10-year period ending Dec. 31, 2016, in both mutual funds and in institutional managed accounts, in stocks and in bonds, and domestically and globally.
In the large-cap equity space, 84.6 percent of mutual fund managers and 79.58 percent of institutional accounts have underperformed the S&P 500 net of fees over a 10-year period. Gross of fees, the researchers found that 68.2 percent of large-cap mutual fund managers and 69.2 percent of institutional accounts underperform.
According to the report, large-cap value is currently the only category of domestic mutual fund that outperformed its benchmarks gross of fees over a 10-year period.
Managers in international, international small-cap and global equities fared better than domestic managers when it came to outperforming their benchmarks.
While the S&P 500 delivered 10-year annualized returns of 7.19 percent during the study period, the average domestic equity fund manager offered 6.94 percent returns. Similarly, while the Barclays U.S. Government Index posted 3.86 percent 10-year annualized returns during the study period, the average government bond fund manager delivered 3.26 percent returns to their investors.
Taken as a whole, fixed-income managers also tend to underperform their benchmarks, according to the SPIVA Scorecard, except in three segments: Mortgage-backed securities, investment-grade corporate bonds and global credit.
The impact of fees falls heavily on fixed-income managers. Over a 10-year period, 88.9 percent of the managers in inflation-linked bond funds underperformed the Barclays U.S. Treasury: U.S. TIPS index net-of-fees, but only 77.8 underperformed gross of fees.
During the study’s 10-year horizon, corporate high-yield bond managers underperformed their benchmark gross of fees at a rate of 84.5 percent, but net of- ees 93.8 percent of the managers miss their benchmark. While 82.4 of them missed their benchmark gross of fees, every global high-yield bond manager in the study underperformed net of fees during the study period.
Active equity fund categories all marked 10-year survivorship rates of higher than 60 percent, with the exception of small-cap growth funds, which posted a 58.5 percent survivorship rate.