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SPIVA® Through a Risk-Adjusted Lens How do active managers stack up to passive on a risk-adjusted basis?
BY Berlinda Liu


Modern Portfolio Theory tells us that higher returns tend to be associated with higher risk. While our SPIVA Scorecards typically show that active funds underperform their benchmarks in absolute returns, they do not address the claim that active funds may be superior to passive investment after adjusting for risk.

As an extension of the standard SPIVA Scorecard, the Risk-Adjusted SPIVA Scorecard assesses the risk-adjusted returns of actively managed funds against their benchmarks on both a net-of-fees and gross-of-fees basis. We consider volatility, calculated through the standard deviation of monthly returns, as a proxy for risk, and we use return/volatility ratios to evaluate performance.

In the past decade in U.S. equity markets, the S&P 500® gained 257%, with positive total returns in 9 of 10 years and 86 of 120 months. However, these steady tailwinds did little to boost the case for active fund managers. After adjusting for risk, the majority of actively managed domestic funds in all categories underperformed their benchmarks on a net-of-fees basis over mid- and long-term investment horizons.

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