New Morningstar data adds to active management’s woes

Posted by Robin Powell on March 13, 2017

New Morningstar data adds to active management’s woes


I’m often quoting data from SPIVA, the active management scorecard produced by S&P Dow Jones Indices. But there is an alternative record of fund performance, namely the Morningstar Active/ Passive Barometer.

Each has its advantages and disadvantages. For example, SPIVA covers the whole world, while  the Barometer focuses on the US. On the other hand, the S&P version evaluates active funds against a costless index, while Morningstar’s measures their performance against a composite of actual passive funds, which you could argue makes for a more meaningful comparison.

That said, the two scorecards provide very similar conclusions. Take the latest report from Morningstar, which analyses performance of 3,500 US-domiciled funds up until the end of 2016. Here, in a nutshell, is what the report finds:

  • Generally, actively managed funds have failed to survive and beat their benchmarks, especially over longer time periods.
  • The average dollar in passively managed funds typically outperforms the average dollar invested in actively managed funds.
  • Investors would greatly improve their odds of success by favouring low-cost funds, which succeeded far more often than high-cost funds over the long term.
  • Long-term success rates were generally higher among US small-cap, US mid-cap, non-US equity, and intermediate-term bond funds, and lowest among US large-cap funds.

Although it’s important for investors to look at long-term data, the latest figures from Morningstar do confirm what a dreadful year 2016 was for active managers — even worse than 2015, which was bad enough. When compared to the previous year, active funds’ success rates in 2016 fell in 10 of the 12 categories examined.


You can read the full report here:

Morningstar’s Active/ Passive Barometer: Year-End 2016



Robin Powell

Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.


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