Few people know the ins and outs of the SPIVA (S&P Indices Versus Active) Scorecard better than Aye Soe, Managing Director of Research & Design. A few months after SPIVA’s 15th birthday, Emily Wellikoff, Indexology Magazine Editor-in-Chief, sat down with her to discuss how the report has grown over the last decade and a half, its most surprising findings, and what’s changed since factor investing started blurring the lines between active and passive.
EMILY: Fifteen years, or one-and a-half market cycles, since SPIVA launched, what’s the most important lesson you’ve learned about active and passive investing?
AYE: The most important thing we’ve learned is that the average manager hasn’t been able to beat the benchmark across most equity and fixed income categories over the long term. There may be a small number of managers who are able to beat the benchmark in any given year, but the likelihood of those managers repeating the same success consistently in the years that follow is small, less than a random coin toss.
EMILY: What are some common misconceptions or myths about the active versus passive debate that you have come across in the last 15 years?
AYE: In equities, many people see small-cap and emerging markets as areas where market inefficiencies may provide opportunities for active management. However, near-, mid-, and long-term results for the two categories show that average active managers do not necessarily fare better than their benchmarks. In fact, over 1-, 3-, 5-, and 10-year periods, the majority of active managers in those two categories have overwhelmingly underperformed. Market inefficiency may exist in those asset classes, but the results dispel the myth that an average active manager has historically been able to deliver higher relative returns than the benchmark.
