Index vs. Active - The Scorekeeper

28/11/2016 6:26:06 AM // Written by Private Capital Limited

Index vs. Active - The Scorekeeper

Every game needs a scorekeeper. The keeper of scores in the Active vs. Passive or Index vs. Active debate is SPIVA. You REALLY need to know about SPIVA. Do you?

To save time please find to follow a few snippets from the SPIVA site. On the assumption that you want to learn more you'll find the necessary link at the end of this note.

What is SPIVA?

"The SPIVA Scorecard is a robust, widely-referenced research piece conducted and published by S&P DJI that compares actively managed funds against their appropriate benchmarks on a semiannual basis. We offer scorecards reporting on actively managed funds in the following countries and regions: Australia, Canada, Europe, India, Japan, Latin America, South Africa, and the U.S."

Why does SPIVA matter?

"The premise of active management is essentially that with enough skill, it’s easy to consistently outperform the market, or the benchmark. When this view was challenged decades ago, it sparked a longstanding debate with strong believers on both sides, and some in between.

The impact of the debate is far-reaching. It informs decisions about whether to use an active manager or invest in an index-based fund such as an ETF. It challenges the notion that alpha is what all investors should strive for. It has also created a need to gauge the suitability of both approaches across a range of time periods and asset classes."

What does SPIVA tell us?

"While no two SPIVA Scorecards are exactly the same, certain themes have emerged over time. One is that actively managed funds have historically tended to underperform their benchmarks over short- and long-term periods. This has tended to hold true (with exceptions) across countries and regions. Another recurring theme is that even when a majority of actively managed funds in a category have outperformed the benchmark over one time period, they have usually failed to outperform over multiple periods."

Why does Active Management struggle?

"SPIVA® research tells us that relatively few active managers are able to outperform passive managers over any given time period, either short-term or long-term. But the true measure of successful active management is whether a manager or strategy can deliver above-average returns consistently over multiple periods. Demonstrating the ability to outperform repeatedly is the only proven way to differentiate a manager’s skill from luck. Through research published in our Persistence Scorecards, we show that relatively few funds can consistently stay at the top."

You owe it to yourself to visit SPIVA, do it today and then come and talk to us about how you can use this powerful information to your advantage. #FeeOnlyHK

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