Study Shows Passive Management Pays

As long as there are fund managers the case will always be made for active management, but which style (active or passive) reaps the best results?

According to a recent Standard & Poor study, most active managers do not beat the market. The “market” refers to the index each manager uses as a benchmark.

Photo by jenny downing, courtesy of flickr

The study examined the performance of actively managed funds from December 31, 2003 – December 31, 2008.

Here are some of the study’s results:

Large-cap funds – The S&P 500 lost about 19 percent, but the loss was good enough to beat 71.9 percent of the actively managed funds.

Small-cap funds - The S&P SmallCap 600 fell 0.6 percent and outperformed 85.5 percent of managed funds in its category.

Emerging markets - The S&P/IFC Emerging Markets Index outperformed just under 90 percent of managed funds.

Standard & Poor Index Services periodically tracks funds through its Standard & Poor’s Index Versus Active Funds Scorecard aka SPIVA. Last November’s report reads much like the latest one.

Historically, few managers beat the market so the results of the study come as no surprise.  The professionals can provide other services that may be of value to their clients, but when it comes to portfolio management over the long-term it pays to be passive!