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SPIVA® Institutional Scorecard: How Much Do Fees Affect the Active Versus Passive Debate?

This report examines the impact of fees on the performance of mutual funds and institutional managed accounts across equity and fixed income categories, using gross- and net-of-fees returns.

Highlights
  • Fees negatively affect managers’ performance regardless of the type of investment account, though the magnitude varies depending on the category.
  • For mutual fund and institutional managed accounts, the majority of managers in nearly every domestic equity category underperformed their respective benchmarks over the 10-year horizon.
  • Large-cap value mutual funds was the only category that outperformed the benchmark on a gross-of-fees basis.
  • In general, more mutual fund managers underperformed than their institutional counterparts for most equity categories on a net-of-fees basis, with the exception of small-cap core and small-cap growth.
  • In the large-cap equity space, 84.60% of mutual fund managers and 79.58% of institutional accounts underperformed the S&P 500® on a net-of-fees basis. When measured on a gross-of-fees basis, 68.16% of large-cap mutual funds and 69.20% of institutional accounts underperformed.
  • Similarly, in the mid-cap space, 96.03% (86.24%) of mutual funds and 92.02% (82.51%) of institutional accounts underperformed the S&P MidCap 400® on a net (gross) basis.
  • In the small-cap space, over 80% of managers on both fronts underperformed the S&P SmallCap 600®, regardless of fees. The findings in the small-cap space dispel the myth that small-cap equity is an inefficient asset class that is best accessed via active management.
  • Managers investing in international, international small-cap, and global equities fared equally to or better than their domestic counterparts with respect to their respective benchmarks on both fee schedules. This finding is consistent for mutual funds and institutional accounts.
  • In fixed income, the results were mixed depending on the market segment. Institutional managers continued to show strength in U.S. products such as mortgage-backed securities (MBSs), investment-grade corporate bonds, and global credit, outperforming their respective benchmarks.
  • The municipal bond market saw a significant performance divergence between institutional accounts and mutual funds. Fees overwhelmingly affected the performance of mutual fund muni managers, as approximately 73% of them failed to outperform the benchmark on a net-of-fees basis, while only 47% underperformed on a gross-of-fees basis, constituting a difference of 26%. That difference is reduced to 12% when looking at institutional muni managers.
  • The significant difference within the muni mutual fund space was not surprising when we examined average fees charged by muni managers across both investment categories. The median fee for muni mutual funds was 0.75% per year, whereas the median fee for institutional muni accounts was 0.35%.