Active vs Passive

S&P Global has just issued their 2024 first half SPIVA Scorecard which measures how many actively managed funds outperformed the S&P 500 across standard rolling time periods. Here are the results: 

Percentage of All Large-Cap funds that underperformed the S&P 500®

SPY = SPDR S&P 500 ETF continuously compounded annualized return.

Closing Price Source: Microsoft Stockhistory function 
%Under = Percent of Active Funds Underperforming the S&P 500 

Source: https://www.spglobal.com/spdji/en/research-insights/spiva/ 

For the year ending 6/30/2024, 76% of ALL comparable actively managed funds, as defined by S&P, could NOT BEAT the S&P 500 index! Looking at the 3, 5 and 10 year periods, it becomes ridiculous with 80% of all active managers underperforming. The year-end 2023 results, were slightly better for the one year period (60% vs 76%) but the longer term results were just as bad for active managers.

I added the annualized returns for the SPY ETF (the largest S&P 500 ETF) to highlight that market returns have no little or no effect on active manager performance. Neither up nor down markets appear to give active managers the advantage. In fact, down markets could be expected to show where active managers shine-they can sell or go short and avoid or capitalize on losses where indexers must take the hits and survive the drawdowns. Results show that their outperformance, if any, is fleeting. There is NO persistence of top ranked active managers from one period to the next. See the SPIVA Persistence Scorecard ( https://www.spglobal.com/spdji/en/spiva/article/us-persistence-scorecard/ ) if you have any doubts about this. 

The SPIVA scorecard has been published for almost 20 years and I do not have this data. You can actually find some historical SPIVA data (2002 to 2017) at Bogleheads websites with links to Google Sheets here: https://www.bogleheads.org/wiki/SPIVA_scorecards and here: https://www.bogleheads.org/wiki/Talk:SPIVA_scorecards .

Suffice it to say that for as long as it has been published, active managers cannot beat the S&P! What does this say for the trillions in active assets? What does this say for individual investors facing a barage of ads and promotions to buy into the next big thing or star fund manager? Is active management just a grift?

Blackstone, Fidelity and Merrill Lynch beg to differ but they do not have the performance to back their claims. One could arguably make the case that If these investment firms and IF the world's largest and richest fund managers cannot beat the passive S&P, then NOBODY can! Futhermore if nobody can consistently and reliably beat the passive index, WHY WOULD ANYBODY invest in anything else?

There may be a reason, and its the same reason we have casinos, bookies and horse races...it's that there's a chance. There's a chance you could pick a winner and a big life changing winner. There's a chance you could be an original investor in Penn Central, US Steel, GE, IBM, Walmart, Apple Computer, Microsoft, AOL, Yahoo, Google, Facebook, Tesla or bitcoin, even. 

Chance belongs to those with risk capital. Serious capital, large or small, may gain from investment with historically exceptional returns.