Active vs. Passive: Mid Year Check-Up

Standard & Poors is out with its latest Index vs. Active Scorecard with data through 6/30/2012. (You can download the entire PDF report here.)

This report is released twice a year to compare the performance of actively-managed mutual funds to an appropriate benchmark and report how many funds are outperforming the market.  The strongest evidence in favor of an index fund portfolio lies in the long term results.

Over the five years that ended 6/30/2012, 79.46% of US large cap funds, 81.98% of mid cap funds and 77.88% of small cap funds lost to their benchmarks. In international markets, 65.86% of all international funds trailed the benchmark over the past five years.

To advisors and asset managers making the argument that some sectors are better for active management: 74.53% of emerging markets funds, 80.56% of real estate funds and 93.62% of high yield bond funds were bested by the index. I’ve already taken this argument to task here.

For me, the most astonishing numbers in the report is the percentage of mutual funds that have been liquidated or merged out of existence in the past five years: almost 27% of US stock funds, 24% of international stock funds and 19% of bond funds.  If you bought a US stock fund five years ago there is a 1 in 4 chance that fund no longer exists.  These numbers are an embarrassment to an industry supposedly catering to long term investors.  I’ve posted this image before but it bears repeating: the mutual fund industry is a giant marketing machine, continuously throwing new product at the wall (aka investors) to see what sticks.


Generally I find it hilarious that the active vs. passive conversation is a “debate” when there is only evidence favoring one side.

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