Do portfolio managers outperform benchmarks?

In this podcast, we discuss surprising results from the Standard and Poors company (S&P) of the performance of active portfolio managers. As explained in the video, over 72% of portfolio managers underperform their respective benchmarks. S&P annually reviews short-term and long-term performance.

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Summary

Scott Wait, CPA, presents the findings of the Standard & Poor’s SPIVA study, which tracks active portfolio managers’ performance against benchmarks. The data shows that over long-term periods, the majority of active managers underperform their respective indices, with mid‑cap managers performing best but still only 27.5% succeeding over 10 years. The podcast concludes by suggesting that matching the index may be a better strategy.

Key takeaway

SPIVA Study: Background and Purpose

The annual SPIVA study tracks whether active managers outperform their benchmarks, with data starting in 2002.

Scott explained that Standard & Poor’s conducts a study each year called the S&P Indices versus Active Managers, reviewing both short‑term and long‑term results for educational purposes.

Active Manager Performance Results Over 10 and 20 Years

Over the past 10 years (2011–2021), only mid‑cap active managers reached a 27.5% outperformance rate; the 20‑year record shows fewer than 10% of active managers beat their benchmark.

He reported that for all‑U.S. equity, small‑cap, mid‑cap, and large‑cap categories, the best performance was from mid‑cap active managers at 27.5% over a decade, and that the long‑term record “is not good.”

Market Capitalization Categories and Definitions

The S&P indices are divided by publicly held market value ranges: small cap ($250M–$2B), mid cap ($2B–$10B), and large cap (over $10B).

Mr. Wait described each category’s value thresholds, noting that the S&P 600 represents small caps, the S&P 400 mid-caps, and the S&P 500 large caps.

Implications for Investment Strategy

Considering the poor track record of active managers, matching the index or benchmark may be a better long‑term strategy for investors.

Scott advised listeners to keep the SPIVA scorecard in mind when evaluating actively managed funds and suggested that an index‑matching approach could be more effective for achieving long‑term goals.

Upcoming Episode and RSW Wealth Management Services

The next podcast will discuss the pros and cons of holding ART in an investment portfolio, alongside a complimentary meeting offer and a summary of the firm’s tax‑minimization services.

Mr. Wait invited questions and comments, announced the topic “Should you hold ART in your investment portfolio?” for upcoming episode, and highlighted the firm’s decades of experience in wealth building, tax minimization, and estate planning.