This from S&P:
“The belief that bear markets strongly favor active management is a myth,” says Srikant Dash, Global Head of Research & Design at Standard & Poor’s. “A majority of active funds in each of the nine domestic equity style boxes were outperformed by indices during the down markets of 2008. The bear market of 2000 to 2002 showed similar outcomes.”
Right: Over the five year market cycle from 2004 to 2008, the S&P 500 outperformed 71.9% of actively managed large cap funds, the S&P MidCap 400 outperformed 75.9% of mid cap funds, and the 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.
In Majority of Active Fund Managers Underperform Benchmarks Across All Categories Over Past Five Years.
will be interesting to see how these results look through June 2009. Active managers are having a good year so far. Of course, we should be comparing to index funds not indexes since you can’t buy an index.
Doesn’t this jive with the statistic that the bulk of alpha is generated by the top quartile funds?
The fall-off from large cap to small cap is probably due to the fall-off of talent and availability of information?
Yes, but over the same period, the S&P 500 outperformed probably 95%+ of the passive funds, given that all passive funds incur fees as well.
A comparison against the index itself – while easy – is disingenuous. A better comparison would be against the cheapest passive fund or ETF; the results will be better for the active managers, I’m sure.