Standard & Poor’s Index Services released today the year-end 2008 results for its Standard & Poor’s Index Versus Active Fund Scorecard (SPIVA). The key findings are summarized below. SPIVA draws its underlying data from University of Chicago’s CRSP Survivor-Bias-Free U.S. Mutual Fund Database. To view the report click here (Standard & Poor’s Indices Versus Active Funds Scorecard, Year End 2008).
A summary of the results:
- Over the five year market cycle from 2004 to 2008, S&P 500 outperformed 71.9% of actively managed large cap funds, S&P MidCap 400 outperformed 79.1% of mid cap funds and S&P SmallCap 600 outperformed 85.5% of small cap funds. These results are similar to that of the previous five year cycle from 1999 to 2003.
- The belief that bear markets favor active management is a myth. A majority of active funds in eight of the nine domestic equity style boxes were outperformed by indices in the negative markets of 2008. The bear market of 2000 to 2002 showed similar outcomes.
- Benchmark indices outperformed a majority of actively managed fixed income funds in all categories over a five-year horizon. Five year benchmark shortfall ranges from 2-3% per annum for municipal bond funds to 1-5% per annum for investment grade bond funds.
- The script was similar for non-U.S. equity funds, with indices outperforming a majority of actively managed non-U.S. equity funds over the past five years.
A brutal bear market is tough enough, but there’s no reason to underperform the target index and pay more taxes due to high turnover. Index mutual funds and ETFs have shown once again that costs matter and that “winning by not losing” is an effective strategy.