S&P Dow Jones Indices: Explore the Active vs. Passive Landscape with SPIVA

Holly Mead (00:00)
Hello and welcome to Tim Edwards and Sid Sasankhan of S &P Dow Jones Indices. Today we’re going to talk about the findings of S &P DJI’s latest SPIVA scorecards which measure actively managed funds against their index benchmarks worldwide. Welcome both. So Tim, I’m going to start with hopefully a really easy question for you. What is SPIVA?

Tim Edwards (00:21)
Well, first, thanks for having me. SPIVA is an acronym. It stands for S&P Index versus Active. And it’s the brand name for a series of global scorecards that we produce for the active fund industry. There’s actually a lot of data that we publish, all sorts of different analytics, but the most commonly referenced figure is a very simple one. We will look at the universe of actively managed funds, we’ll categorize them into appropriate categories like large cap US equities, emerging equities or government bonds, and then we’ll simply report over the last year, three years, five years, 10 years, how many of those actively managed funds beat the category benchmark.

Holly Mead (01:03)
Now, Sid, you recently published the mid-year 2025 scorecards. Can you tell us about some of the key findings you found?

Sid Sasankan (01:09)
Absolutely. So we’ve got a chart here that gives you the high level picture. So these are the mid-year results for actively managed funds domiciled in Europe. And what we’re looking at here is the cross category averages across equity and fixed income on the right hand side. Now, when we think of the first half of 2025, we’ve been navigating tariff turmoil, we’ve seen heightened geopolitical risks.

We’ve also been seeing the fluctuating fortunes of US mega caps. And with that, on an absolute and relative basis, the performance of funds has varied significantly depending on the market segment that they’re focused on. But what you’re finding here is actually the year to date results are quite typical. So for equities, we’ve seen 61 % of funds underperforming their benchmark and for fixed income, 59 % of funds underperforming their benchmark on average.

Holly Mead (02:10)
But that’s a year to date, can you talk to us about the longer term trends?

Sid Sasankan (02:13)
Absolutely. So just looking at that chart longer term, so looking at the 1, 3, 5 and 10 year numbers, you can see that the further you go out, the more difficult it is to outperform the benchmark. And although the magnitudes are slightly different for equities and fixed income, you can see the trends are quite similar. The other thing to note is these results would look a lot better for active funds if we did not control for survivorship bias. So when you’re conducting analysis, on five, 10 years plus a lot of funds actually are liquidated ⁓ during that period, liquidated or closed down in that period, usually on the back of underperformance. So it’s important to control for that in order to prevent the results being skewed towards the funds that did survive, which might have performed better.

Holly Mead (03:05)
And Tim, one thing that strikes me from these figures is that fixed income tends to have a better rate of underperformance. Why is that?

Tim Edwards (03:13)
Yeah, that’s right. Certainly in this year’s figures, it was clear from the chart showed earlier, over every time horizon, the proportion of fixed income active funds that were underperforming was lower than inequities. But there are a couple of important things to say about that before we talk about why. First thing is, yes, a little bit better, but you still saw over every time horizon the majority of actively managed funds underperforming. So better, but still majority underperformance.

The drivers for that vary, right? There’s a lot of different categories and there are different stories in different markets. But if there are some common themes, what our analysis suggests is that in many cases, what active bond funds are doing is they are taking on a little bit more credit risk than the benchmark. So if they’re in a high quality credit category, maybe they’re taking on a little bit more risky investment grade. If they’re in investment grade, maybe they’re taking on a bit of high yield. And if they’re in the high yield category ,maybe they’re going towards the  most dangerous waters within high yield. So that has been a strategy which more or less over the last one, five, 10 years, that will have rewarded managers because those higher yields did actually return, that did actually manifest. However, it can mean that there’s a slightly different risk profile for those active funds than there would be for the benchmark, which is more typically more diversified and by design is representative of the investment grade or the software in space.

Holly Mead (04:45)
So we should point out that these are the European scorecards. Sid, why do we have different scorecards for different regions?

Sid Sasankan (04:53)
Yeah, great question. SPIVA now covers nine different regions with Europe and US being the biggest and the most popular, but it is important to have reports for different regions, although the message across the different reports are pretty consistent in that over the long term, it is very difficult for actively managed funds to outperform a benchmark. The reason why we have these different reports is one to capture the the different market dynamics that you might find in these markets. So for example, the US market will have more US focus categories and European markets will have more European categories. Another aspect that is very important is accessibility. So for example, a European investor might find it irrelevant to have US funds included in their SPIV universe because they cannot access them.

So it doesn’t make a huge amount of sense to include US funds for a European investor and vice versa. And the final point would be fees. So fees are hugely important when it comes to looking at the rates of underperformance of funds. And these can also differ from region to region.

Holly Mead (06:06)
So that’s regions and we talked about taking survivorship into account. But I think one thing we should talk about is risk adjusted returns. How are you thinking about that?

Tim Edwards (06:15)
Yeah, so we typically talk about the underperformance rates. And I think that’s probably right. I think the fundamental value proposition of an active manager is that they’re going to deliver you market beating returns. But if they are achieving market beating returns, but they’re doing so by taking on more risk, that’s potentially important information. And so what we also do among the various tables and figures published in the reports is we do produce statistics that show you what those are our performance rates, underperformance rates would be if we controlled for risk or adjusted for volatility. We’ve also done research extensions just sort of answering the question, are actively managed funds more volatile or less volatile than the diversified benchmarks that tend to represent the categories. So there’s a wealth of information there. I think it’s possibly important to notice though that the overall story doesn’t really change. Whether you would control for risk or you don’t.

in most categories most of the time, beating the benchmark is difficult.

Holly Mead (07:17)
But what would you say about claims of bias in all this?

Tim Edwards (07:21)
Well, we are an index provider and this is a report that in some sense shows that it’s hard to beat indices. So I appreciate the question. Here’s what’s important. We have been producing our US scorecard for over 20 years. We’ve been producing our European scorecard for more than 10 years now. Every six months we come out and if it’s good for the active managers or it’s bad for the active managers, we publish the statistics. And most years, including in the European Scorecard, you will find categories where you’re seeing active managers are doing great. And we will report those statistics as well. we are keen to keep informing the conversation with these statistics. The analysis is fully disclosed. And so you may think we’re biased, but we show you exactly how we calculate it. And I think it is important that we keep on reporting these statistics, no matter whether they look favorable or unfavorable to indices.

Holly Mead (08:18)
So it’s all pretty comprehensive, nine regions, said, but some categories aren’t covered. Why is that?

Tim Edwards (08:24)
Yeah, that’s true. A variety of reasons. mean, the most trivial reason is there may not be enough funds. We want to have a robust sample. We want to show 10-year statistics, so not just a lot of funds around today, but ideally a universe that we can examine 10 years ago. There are some categories that it’s difficult to benchmark. So an example here would be multi-asset funds, balanced or conservative or aggressive. There’s not really a consensus yet among the industry is what the right benchmark is for those funds. And they may not be marketing themselves as benchmark beating. It’s more about asset allocation and fitting a certain profile. So sample size, availability of a benchmark, and sometimes also availability of data. And I should say there are funds that we don’t have the data on, and this would include ⁓ private equity and hedge fund, some hedge fund categories.

We just don’t have the right data sources to do our analysis.

Holly Mead (09:25)
And what about active ETFs, Sid? Are you looking at those?

Sid Sasankan (09:29)
Yeah, mean, it’s true, active ETFs have grown in popularity over the last few years. But I would say the vast majority of active ETFs have a track record that is less than three years. And in order, again, some of the points that Tim mentioned, in order for us to conduct meaningful ⁓ analysis on the performance, you need to have ⁓ a decent track record for that. And the other point I would mention is sample size, so when you start putting these active ETFs into different categories, there aren’t enough active ETFs, although there are quite a few now, there aren’t enough ETFs again to conduct meaningful performance analysis. But I’m sure in time, these things will change and we’ll be watching this space closely.

Tim Edwards (10:13)
Might be worth adding, know, ETFs are among other things, they are also flotants. So we do include active ETFs in our analysis. We just don’t treat them separately, as Sid points out, because actually over 10 years, there’s not really a robust sample size.

Holly Mead (10:32)
I mean, and as they’re in use and we get more performance figures and longer track records, how do you think that wealth managers can manage expectations for their clients around performance of passives, particularly in light of the scorecards?

Sid Sasankan (10:48)
Yeah, I think just thinking about that question a bit more and thinking about client expectations. So we’ve seen results coming out from a survey that was done by Cerulli in the US as an example, where we see that clients seem to care less and less about outperforming a benchmark and more about fees, something that they can perhaps control a little bit more. Spiva is designed to inform and educate the audience and it’s even in fact used by some active fund managers to look at maybe which markets they should be looking at or focusing on a little bit more closely.

Tim Edwards (11:24)
If I can add to it, particularly on the shorter term numbers, there are dynamics that can make it easy or harder in certain periods or certain markets to outperform, right? What our SPIVA data allows you to do is to look at different geographies, different asset classes, and over the last year or six months or three years, you say, well, what were my chances of outperforming? How did the industry do? If you’re someone who is an allocator to active funds, this kind of tells you how good were your choices compared to the broader opportunity set? If you’re someone who uses passive funds, this might help you explain to your end investor why you’re using passive funds. And if you’re using a mix of active and passive, SPIVA can help identify those markets where finding a great manager is worth your time and those where the odds are really stacked against you.

Holly Mead (12:13)
Thank you both. That’s it for today. learn more about Spiva and the topics we have discussed, please visit S&PDJI at the link below.