There is no better scorekeeper in the active vs. passive fund debate than the SPIVA Scorecard. Published by S&P Dow Jones Indices, the semi-annual report measures the percentage of actively-managed funds that outperform their market index benchmark over specific periods of time, net of fees. I consider the SPIVA Scorecard a must-read for 401(k) fiduciaries.
Below are results from the year-end 2018 SPIVA Scorecard for domestic, foreign and fixed income markets. Like past scorecards, it found only a small percentage of actively-managed funds outperform the market over time. The takeaway for 401(k) fiduciaries? There is a very good chance that low-cost passively-managed index funds and ETFs that seek to match - not beat - the market will offer superior investment returns over the long term.
|
Fund Category |
Comparison Index |
1-year |
3-year |
5-year |
10-Year |
15-Year |
|
All Domestic Funds |
S&P Composite 1500 |
68.83% |
81.49% |
88.13% |
84.49% |
88.97% |
|
All Large-Cap Funds |
S&P 500 |
64.49% |
78.98% |
82.14% |
85.14% |
91.62% |
|
All Mid-Cap Funds |
S&P MidCap 400 |
45.64% |
74.29% |
79.88% |
88.03% |
92.71% |
|
All Small-Cap Funds |
S&P SmallCap 600 |
68.45% |
84.35% |
89.40% |
85.67% |
96.73% |
|
All Multi-Cap Funds |
S&P Composite 1500 |
66.79% |
82.44% |
88.58% |
86.36% |
90.70% |
|
Large-Cap Growth Funds |
S&P 500 Growth |
60.27% |
76.00% |
87.50% |
84.08% |
94.59% |
|
Large-Cap Core Funds |
S&P 500 |
75.85% |
87.21% |
92.35% |
93.27% |
92.09% |
|
Large-Cap Value Funds |
S&P 500 Value |
46.27% |
70.91% |
79.08% |
81.71% |
79.33% |
|
Mid-Cap Growth Funds |
S&P MidCap 400 Growth |
15.20% |
53.79% |
69.38% |
87.40% |
91.45% |
|
Mid-Cap Core Funds |
S&P MidCap 400 |
62.18% |
85.59% |
89.26% |
90.23% |
95.05% |
|
Mid-Cap Value Funds |
S&P MidCap 400 Value |
72.22% |
94.23% |
93.55% |
87.77% |
92.11% |
|
Small-Cap Growth Funds |
S&P SmallCap 600 Growth |
61.45% |
76.32% |
88.17% |
85.65% |
98.17% |
|
Small-Cap Core Funds |
S&P SmallCap 600 |
87.55% |
94.17% |
95.13% |
92.97% |
97.44% |
|
Small-Cap Value Funds |
S&P SmallCap 600 Value |
83.33% |
89.38% |
94.39% |
87.41% |
93.51% |
|
Multi-Cap Growth Funds |
S&P Composite 1500 Growth |
65.90% |
81.09% |
88.33% |
87.39% |
90.55% |
|
Multi-Cap Core Funds |
S&P Composite 1500 |
81.74% |
91.50% |
98.33% |
91.79% |
92.44% |
|
Multi-Cap Value Funds |
S&P Composite 1500 Value |
74.77% |
80.00% |
88.89% |
81.48% |
86.59% |
|
Real Estate Funds |
S&P United States REIT |
88.89% |
76.47% |
75.00% |
88.17% |
86.21% |
|
Fund Category |
Comparison Index |
1-year |
3-year |
5-year |
10-Year |
15-Year |
|
Global Funds |
S&P Global 1200 |
70.61% |
84.26% |
84.92% |
81.20% |
83.16% |
|
International Funds |
S&P 700 |
76.84% |
89.19% |
81.78% |
81.07% |
89.83% |
|
International Small-Cap Funds |
S&P Developed Ex-U.S. SmallCap |
65.52% |
73.42% |
73.68% |
64.15% |
75.86% |
|
Emerging Markets Funds |
S&P/IFCI Composite |
78.10% |
89.27% |
92.67% |
87.72% |
96.15% |
|
Fund Category |
Comparison Index |
1-year |
3-year |
5-year |
10-Year |
15-Year |
|
Government Long Funds |
Barclays US Government Long |
16.98% |
100.00% |
96.61% |
94.94% |
98.04% |
|
Government Intermediate Funds |
Barclays US Government Intermediate |
100.00% |
100.00% |
81.82% |
80.56% |
91.67% |
|
Government Short Funds |
Barclays US Government (1-3 Year) |
86.96% |
81.48% |
79.31% |
67.65% |
82.86% |
|
Investment-Grade Long Funds |
Barclays US Government/Credit Long |
9.09% |
93.48% |
98.91% |
80.31% |
98.41% |
|
Investment-Grade Intermediate Funds |
Barclays US Government/Credit Intermediate |
90.82% |
40.00% |
51.63% |
49.38% |
76.63% |
|
Investment-Grade Short Funds |
Barclays US Government/Credit (1-3 Year) |
92.55% |
45.45% |
54.84% |
43.75% |
70.21% |
|
High Yield Funds |
Barclays US Corporate High Yield |
75.60% |
96.63% |
96.52% |
96.63% |
99.15% |
|
Mortgage-Backed Securities Funds |
Barclays US Aggregate Securitized - MBS |
84.62% |
74.07% |
84.48% |
64.81% |
95.83% |
|
Global Income Funds |
Barclays Global Aggregate |
60.95% |
59.09% |
57.66% |
47.22% |
62.86% |
|
Emerging Markets Debt Funds |
Barclays Emerging Markets |
92.98% |
68.97% |
98.00% |
90.91% |
85.71% |
|
General Municipal Debt Funds |
S&P National AMT-Free Municipal Bond |
85.33% |
67.07% |
46.25% |
44.59% |
84.11% |
|
California Municipal Debt Funds |
S&P California AMT-Free Municipal Bond |
93.94% |
47.22% |
27.78% |
36.84% |
86.96% |
|
New York Municipal Debt Funds |
S&P New York AMT-Free Municipal Bond |
76.00% |
62.96% |
35.71% |
54.55% |
86.84% |
|
Loan Participation Funds |
S&P/LSTA U.S. Leveraged Loan 100 |
56.86% |
72.92% |
51.06% |
80.95% |
- |
Investment in passively-managed investments like index funds and ETFs is exploding. According to a Morningstar study, these investments took in a record $504.8 billion in 2016. That’s in contrast to actively-managed funds – who experienced outflows of $340.1 billion in 2016.
Why are investors flocking to index funds? The answer is simple – when compared to comparable actively-managed funds, index funds that track the broad stock market indices are more likely to offer superior returns, net of fees charged.
What does the trend mean for 401(k) fiduciaries? Index funds are now the de facto baseline for 401(k) investment returns. Fiduciaries can try to do better with actively-managed funds, but they should understand the odds are not in their favor. For those that want to try, I strongly recommend they hire an ERISA 3(38) Investment Manager to help tilt the odds.