How difficult is it to beat the benchmark in markets around the world? S&P DJI’s Tim Edwards takes viewers inside the latest SPIVA results and explores the challenges of active management over the long term.
[TRANSCRIPT]
Tim Edwards:
It's an age-old question in investing, what's been doing better, actively managed funds and stock pickers, or the benchmarks that they try and beat? Hello, I'm Tim Edwards, and this is your SPIVA wrap.
One number we'll revisit again later, and a simple perspective is 97% of actively managed funds have been underperforming. But which funds, in which regions, and in which categories versus what benchmark? Let's dig in.
First off, how do we calculate a number like that? What we do is we use mutual fund data providers to get a collection of all the funds that were available a certain time period ago. So it might be all the active funds that were available for sale a year ago, three years ago, five years ago. Once we've created that sample, we'll then track the performance of those funds over the months and years up to a certain endpoint, for example, the end of 2025.
Some of those funds will do well, some of them will do badly, and some of them might actually fail to survive the whole period, as they're merged or liquidated. Once you've got to the end of the period and you've got some that have survived, some that haven't, then, importantly, we assign a benchmark for each fund category. That might be a broad emerging market index or, in the case of large-cap U.S. equities, a very familiar index like the S&P 500. We'll see how the benchmark did and then do something very simple. We'll count how many funds available at the start of the period survived and beat the benchmark. Everything else is counted as an underperformer.
Now, our reports cover fund industries around the world, but the largest and most significant is the U.S. market. And here are some summary statistics from the latest SPIVA U.S. Scorecard, which ran to the end of 2025. There are more categories in the full report, but here are some of the largest ones split across domestic equity, international equity, and fixed income. These figures here show you the one-year underperformance rate. So for example, all domestic U.S equity funds out of all of them that are actively managed, 80% underperformed our broad U.S. benchmark, S&P Composite 1500. The coloring is, the darker the orange, the higher the underperformance rate.
But we don't just look at one year, we do also look at three-year performance horizons, five-year performance horizons, 10-year performance horizons and, actually 20 years as well. And what you can see just visually from this graphic is that in most categories over most time horizons, a majority of actively managed funds underperformed across domestic equity, international equity and fixed income.
Now, there are some exceptions of course, and one of the rich values in this scorecard is showing you where actively managed funds are doing well, and where it's more difficult to beat the benchmark. I'll just highlight here for you the largest U.S. category, U.S. large caps versus the S&P 500, and these three numbers, one-year and three-year and five-year underperformance rates, 79%, 67% and 89%, respectively. That's the record of domestic stock pickers versus their domestic benchmarks.
Here's those same figures as reproduced on a global map, one-, three- and five-year underperformance. And across our 11 global SPIVA Scorecards for different fund regions, there's actually 17 different domestic markets where we can compare fund managers in their category to their local benchmark as reported at the end of 2025. And I'll highlight a couple of things that immediately jump out to me.
The first is that overall the same thing holds. In most markets over most time horizons, a majority of active funds underperformed to the end of 2025. However, you do see significant variation ranging from 43% underperformance in China up to 94% over one year in South Africa. The other thing that jumps out is most of the numbers are actually above 50%. So most regions, most time horizons, actively managed funds were underperforming, or at least a majority were. And the other thing that you might notice is that as the time horizon extends, as you go from left to right on the figures, the numbers tend to go up. That's the equity story.
We have a similar picture on fixed income. Not quite as many markets, but there are a good selection around the world of different markets where we can look at sovereign, investment grade, or high yield bond managers and how are they doing versus benchmarks. You see a similar thing, high degree of variation in the short term ranging from Australia, 27% underperforming, all the way up to the U.S. where 94% of actively managed general government funds underperformed their assigned benchmark.
Now, that's the latest report, but we've actually been producing the SPIVA Scorecards for over 20 years. And that allows us to make not just comparisons between different markets, but also comparisons over time. This is the historical record of the largest U.S. category, actively managed U.S. large cap funds compared to the S&P 500. Here's the 2025 number, 79% underperformance, which was actually high, for a various number of reasons that are actually detailed in the full report.
But it was also the fourth worst out of 25 years, so an unusually difficult year for U.S. equity active funds and not just in that category either. The largest category globally in terms of the number of funds is broad global developed equities. And what we did is, looking across all the SPIVA Scorecards around the world, we took an average across active funds domiciled in Australia, Japan, Canada, the U.S. and Europe to give an aggregate statistic, the percentage of funds underperforming the S&P World Index over one, three, five and ten years. And that's that 97% of actively managed funds underperform, which was the statistic I introduced at the beginning. A rough 10 years globally for fund managers trying to beat broad developed equity benchmarks.
That's equities, and of course, there's been a lot of discussion around fixed income funds. And one of the things that you might have heard a lot is, sure, it's difficult to beat benchmarks in equities, but the bond markets are a different matter. And in fixed income and in high yield bonds in particular, active management does a lot better. Well, what do our SPIVA Scorecards say? If you collect together our Europe and U.S. data, you've got a decent sample set, especially for the high yield fixed income universes in euro and US dollars. Taking an average across those categories, here are the underperformance rates over one, three, five and 10 years.
And two things appear to be true. The first is that, generally speaking, and particularly over long term, the underperformance rate in high yield is lower than it has been for global developed equities. However, better does not mean great, and we're still seeing a significant majority of actively managed funds underperforming benchmarks over various time horizons. Those are just some of the highlights from the range of global SPIVA Scorecards that we produce every six months.
And it's not just actively managed funds versus benchmarks. We also look at different metrics with reports on how persistent the outperformance is of those funds who did outperform, looking at tax-adjusted returns, looking at portfolios of active funds, and much, much more. All of these reports and more can be viewed at our website if you visit www.spglobal.com/spiva.
As 2025 fades into history, market participants in 2026 have faced an extraordinary new set of challenges and opportunities. How have actively managed funds performed? Well, we'll find out on our next edition of SPIVA Scorecards, but for now, thank you for watching.
