November 16, 2008 5:27 pm

Proof that indices do better than managers

Active managers struggle to outperform their benchmarks over any extended period of time, according to new evidence.

Standard & Poor’s Index Services has relaunched its Spiva scorecard, which compares the performance of US mutual funds and benchmark indices. Using data corrected for survivorship bias, the scorecard shows the benchmarks outperformed the managers in at least 70 per cent of cases in almost all categories.

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“This is true even in relatively inefficient segments of the market such as small capitalisation stocks and emerging markets,” said Srikant Dash, head of global research and design at S&P Index Services.

It is even harder for fixed income fund managers than for equity managers to outperform the index “because of relatively higher transaction costs and lower cross-sectional dispersion in fixed income markets”, said Rosanne Pane, director at S&P Index Services. About a quarter of US funds have been merged or liquidated over the past five years, showing the need for correcting for survivorship bias.

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