The latest results from the independently researched Standard & Poors Index Versus Active (SPIVA) Australian scorecard reinforce how difficult it is for active investment managers to generate better than the market returns (referred to as “beating the market”) after fees on a recurring basis.
The publically available SPIVA research report measures the performance of active investment managers against the relevant market index.
For the 12 months ending 30 June 2012, 72% of active Australian investment managers were outperformed by the market (as measured by the S&P/ASX200 Accumulation Index). Over three years the percentage of active funds beaten by the index was 72%. Over 5 years the percentage outperformed increased to 82%.
The results are similar in the fixed interest space with 100% of actively managed fixed interest investments failing to beat the index for the 12 months ending 30 June 2012. Over 5 years 92% of actively managed fixed interest funds returned less than the index (as measured by the S&P/ASX Australian Fixed Interest Fund).
These results highlight the very reason why we build client portfolios around core holdings of market and asset class exposures, which keeps costs efficient and significantly reduces the risk of underperformance. Many investors seek outperformance without realising the additional risk this involves and long term cost of their actual underperformance or lost opportunity.