The latest S&P Indices Versus Active Funds (SPIVA) Scorecard has been released in the US. Australian investor might ask what has that got to do with investors here in Australia? We think it is very important for two reasons:
- Most likely 50% of an Australian investor’s international share exposure is invested in US companies.
- Academic research continues to show that the largest share market in the world provides a guide as to what will and does happen in markets around the world including the much smaller Australian share market
So what does the latest report tell us?
Yet again the US SPIVA Scorecard finds that active fund managers, those charging significant fees and spending significant resources to choose investments that will beat the average market, are failing to beat the benchmark S&P Index.
For the twelve months to the end of June, 2013:
- 59.58% of large cap funds,
- 68.88% of mid cap funds,
- 64.27% of small cap funds,
- 62.59% of global funds,
- 65.86% of international funds, and
- 74.53% of emerging markets funds all underperformed.
The only winning sectors for active managers were the US small cap growth sector and international small cap sector.
The five year data was even more condemning of active managers.
(Refer to the full SPIVA report for further details.)
What are the lessons for investors in Australia?
The key lesson for us Australian investors is that we need to be very careful in employing active fund managers as all we may be doing is helping the fund managers to buy their yachts, mansions and expensive cars and not actually providing any value to our portfolios. Many studies show that a key reason for the underperformance is the extra fees that have to be paid to the fund managers. This creates a headwind that is difficult for them to overcome.
There are many other reasons and we encourage you to take a look at our research pages to understand more about why active managers are not likely to be a great investment choice.
Please be in contact if you would like to discuss how to apply this research to your particular circumstances – firstname.lastname@example.org