Your fund managers are failing you..want proof?
Thursday, 5 November 2009
Standard and Poors produces The Standard & Poor's Index Versus Active (SPIVA) methodology is designed to provide an accurate and objective apples-to-apples comparison of funds’ performance versus their appropriate style indices, correcting for factors that have skewed results in previous index-versus-active analyses in the industry.
In 2008, the Standard and Poors summary results were as follows:
- Over the five year market cycle from 2004 to 2008, S&P 500 outperformed 71.9% of actively managed large cap funds, S&P MidCap 400 outperformed 79.1% of mid cap funds and S&P SmallCap 600 outperformed 85.5% of small cap funds. These results are similar to that of the previous five year cycle from 1999 to 2003.
- The belief that bear markets favor active management is a myth. A majority of active funds in eight of the nine domestic equity style boxes were outperformed by indices in the negative markets of 2008. The bear market of 2000 to 2002 showed similar outcomes.
- Benchmark indices outperformed a majority of actively managed fixed income funds in all categories over a five-year horizon. Five year benchmark shortfall ranges from 2-3% per annum for municipal bond funds to 1-5% per annum for investment grade bond funds.
- The script was similar for non-U.S. equity funds, with indices outperforming a majority of actively managed non-U.S. equity funds over the past five years.
Referring to one of the statistics, the S&P 500 which outperformed 71.9% of actively managed large cap funds. Whilst I understand there is no equivalent in the UK, various studies tend to show the UK is not too dissimilar, on that basis it is likely that over 70% of UK domiciled funds fail to beat the market.
Yes this says it all...
So why do investors persist in trying to beat the market when the statistics show its futile?
With this evidence, it would seem logical, for investors to conclude that passive investing is the most reliable way to capture market returns and for the investor to benefit from a successful investment experience over time. Institutional investors are aware of these facts and are increasing the demand for passive investments..but what about the private investor?
High net worth investors, by and large, are not fully aware of these facts, otherwise they too would be making the move. Why are so many investors not taking action?
The conclusion is simple. The fund management industry in the UK does not want to promote the fact that most of them do not beat the market. They have failed but do not want investors to know they have failed.
My message is also simple. Educate yourself then the answers become self evident. Vote with your feet and money to securing a more reliable investment experience over time.
posted by Murray Round Wealth Management @ 15:31,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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