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Passive Investing vs. Active Investing

The 2022 Year-End SPIVA U.S. Scorecard was recently released.  S&P Indices versus Active (SPIVA) scorecards are reports published by S&P Dow Jones Indices that compare the performance of active equity and fixed income mutual funds against their benchmarks over different time horizons.

Here is a link to the most recent report

SPIVA U.S. Year-End 2022

Most readers know passive investing has been outperforming active investing.  I doubt most readers know that over a 20-year period 94.79% of domestic large cap managers using the S&P 500 as their benchmark have underperformed the index.  This can be found on page 9.  Managers in mid, small, and multi-asset classes are not faring any better.  

This post is not designed to debate passive vs. active.  The results speak for themselves.  The common narrative for the passive outperformance is fees.  Obviously, fees are important, and everyone should strive to pay the lowest fee possible.  I believe active management is not designed to outperform an index.  Active management is designed to tell a narrative about an investment strategy, accumulate assets and make money for the fund managers/company.  The more assets one manages, the more fees he/she will earn.  At some point the goal becomes to maintain the asset base not actively manage the portfolio.  Oh, I failed to mention taxes.  Without going into much detail, I think we all know the outcome is worse for active management when taxes are included. 

Every Year you will read/listen to market pundits comment on how this is a stock pickers market.  Where are these so-called stock pickers?  It doesn't appear they are managing a Mutual Fund. 

I'll try to post a link when the SPIVA report is produced.  It's unlikely we will see much improvement by the active investment managers but as they say even a blind squirrel finds a nut once in a while.   

* This post is for informational purposes only.  Past performance is not a guarantee of furture returns.  Please consult an investment advisor when making personal investment decisions.