S&P Research Findings Kill Active Fund Management

MJG

Hi Guys,

I apologize if these S&P study results were previously posted on MFO. I miss plenty, but much more importantly, the S&P findings conclude that active mutual fund management misses even more. Here are two recent research Links from that firm.

The first essentially concludes that globally about 95% of actively managed funds underperform their Index over periods that exceed 3 years. The specific numbers change but the underperformance is dramatic, is persuasive, and is not too surprising. The second Link talks about fund performance persistence. Again, a very dismal set of statistics is presented. Persistent superior performance simply does not exist, with perhaps a very, very few exceptions.

https://us.spindices.com/documents/spiva/spiva-us-year-end-2016.pdf

https://us.spindices.com/documents/spiva/persistence-scorecard-december-2016.pdf

Enjoy, but much to much detail in these reports. However, the bottomline conclusions are significant and easy enough to understand, Owning a portfolio of actively managed mutual funds is likely ( high probability ) a losers game. Good luck on picking a recent winning fund and having that fund repeat its superior performance. The outlook is not encouraging given the probabilities and the potential excess plus or minus returns relative to a fair Index.

There's a simple solution here.

Best Regards

finder

The question is: Should we consider S&P an actively managed fund?

Tony

This includes how Bill Miller considered the S&P 500 index. https://www.mutualfundobserver.com/discuss/discussion/32935/on-beating-the-s-p-500-a-mutual-fund-manager-s-perspective#latest

msf

https://www.thestreet.com/story/1305526/1/make-a-bundle-on-the-sps-rejects.html

The S&P 500 is often mischaracterized as a passively managed index of large stocks, but in 2000, its managers became seriously aggressive -- adding (and subtracting) four new stocks each month, on average. In the process, the index was systematically stripped of small and mid-sized value stocks from Jan. 28 to Dec. 11 in favor of large-cap growth stocks -- largely from the technology sector, and at exactly the wrong moment.

You didn't know that stocks are sometimes removed from the index for subjective reasons, just as they are at any ol' mutual fund?"

2000 was merely the culmination of five years of irrational exuberance on the part of the S&P committee: "Starting in 1995, it has evicted old stocks from the S&P 500 and stuffed in new ones at an unprecedented pace"
http://money.cnn.com/2001/06/13/zweig_on_funds/zweig_on_funds/a.htm (Jason Zweig)

----

"Good luck on picking a recent winning fund and having that fund repeat its superior performance."

Do I detect a bit of bias? Many of us look at length of management (irrelevant to recent performance), MPT statistics (generally not even available for recent periods under three years), etc.

M* analysts, for whatever else you may think about them, often award gold and silver metals to funds with abhorrent recent performance. YACKX (gold, 87th percentile YTD), BERIX (silver, 91st percentile YTD), DODBX (gold, 77th percentile YTD), FMIJX (gold, 97th percentile YTD), MAPOX (silver, 77th percentile YTD), OAKLX (gold, 89th percentile YTD).

Recent winning performance is not a necessary condition for selecting funds going forward, and I doubt many people here constrain their selections so narrowly.

MJG

Hi Guys,

Thank you for your insightful comments. They all added depth and opinion diversity to the discussion.

A ton of candidate Indexes are frequently updated to permit a comparison of an individual's fund portfolio performance against some meaningful Index. Here is an extensive array of Indexes prepared by Morningstar:

http://news.morningstar.com/index/indexReturn.html

The list seems endless. You get to choose your own poison. They serve to provide an easy measurement of how well you are doing or if changes are needed. Good luck and good investing decisions to all. Investing is an ill defined combination of both skill and luck.

Best Wishes

hank

@MJG - Nice to see you posting after a lull. Hope everything’s well with you and yours.