SPIVA, AGAIN AND AGAIN AND AGAIN

Today’s question: When is “no news” news?

Answer: When the same research shows the same results again and again and again, it affirms a finding.

That’s what we see in the most recent SPIVA report: It’s another affirmation of the results they found the first time. The report, authored and updated every six months by Standard and Poor’s, examines the percentage of managed funds that fail to beat their appropriate index over time periods ranging from 12 months to 15 years.

SPIVA, by the way, stands for “S&P Indices Versus Active Funds Scorecard.” They’ve been doing the report since late 2002, with data going back to late 1997. That’s a long time to be getting essentially the same result over and over.

What have the reports found?

Managed funds fail to beat the market measure they are trying to beat. But there’s more: The longer the measuring period, the more dismal the performance of the managed funds.

Really? Can we call it “dismal”?

I think so. We can check if our interpretation of the word “dismal” is the same with a few numbers.

Do you think it’s dismal if 80 percent of all managed funds fail to beat their index over periods as short as five years? Do you think it’s dismal if 90 percent of managed funds fail to beat their index benchmark over periods of 10 to 15 years?

If so, we’re on the same page about “dismal.”

Trust me, you won’t hear about this from your friendly salesperson. The sales and marketing side will tell you how exceptional their managers are and why it makes sense that they’ll beat Mr. Average. They can’t look at the odds.

The reason for this is simple. Upton Sinclair originally stated it:


“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”


In fact, the latest SPIVA report shows dismal results for managers:

—For all domestic equity funds, 87.88 percent and 87.76 percent failed to beat their index over the last 10- and 15-year periods, respectively.

—For all international funds, 81.56 percent and 90.21 percent failed to beat their index over the last 10- and 15-year periods, respectively.

—For all emerging markets funds, 77.87 percent and 94.34 percent failed to beat their index over thee last 10- and 15-year periods, respectively.

For all government fixed-income funds, long term, intermediate term and short term, the best performance over the last 10 and 15 years was 69.7 percent trailing their index. The worst was a 98 percent fail rate.

Can we find sunshine for management anywhere?

Yes, tiny dapples of sunlight appear here and there. But they are ephemeral, quick to disappear. More important, they usually occur in areas that aren’t primary places for you and me to invest.

Of the 14 fixed-income investing areas, for instance, only 41.27 percent of investment grade short-term funds were beaten by their index over the last 10 years. Similarly, only 45.95 percent of California municipal debt trailed their index.

The bottom line here is very, very simple. The most certain path to reducing the return on your retirement savings in any kind of plan is to try to “beat the market” with managed funds.  And if index funds beat their managed competition 80 to 90 percent of the time – sometimes more – no one can say they are just “average” because they deliver results that are superior to the vast majority of their competitors.

That’s why I have been an advocate of low-cost index funds for decades. If you want to base your retirement future on persistent data rather than hope and wishful thinking, investing is all about index funds.

Skeptical?

Then check out the consistency of the results. Here are links to five columns, written from 2006 to 2016, all showing the same general result.


Scott Burns, “The Lessons of couch potato investing,” 11/25/2016 https://scottburns.com/the-lessons-of-couch-potato-investing/

Scott Burns, “The conspiracy for failure in 401(k) plans,” 08/23/2013 https://scottburns.com/the-conspiracy-for-failure-in-401k-plans/

Scott Burns, “There is nothing quite like the assurance of failure,” 05/18/2012    https://scottburns.com/there-is-nothing-quite-like-the-assurance-of-failure/

Scott Burns, “It’s time for plan B,” 05/01/2009   https://scottburns.com/its-time-for-plan-b/

Scott Burns, “Four milestones for successful investing,” 12/09/2006 https://scottburns.com/four-milestones-for-successful-investing/

Sources and References:

Standard and Poor’s listing of SPIVA reports

https://us.spindices.com/search/?ContentType=SPIVA&_ga=2.110875269.1451908672.1574193387-1522877685.1573679383



This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.


Photo by RUN 4 FFWPU from Pexels

(c) Scott Burns, 2019