Again Low Fee Index Funds Beat Active Managed

[38Chevy454]

Saw this morning, and thought I would post here. Excerpt cut from the article:


"According to S&P Dow Jones Indices Risk-Adjusted SPIVA Scorecard: Year-End 2020, after adjusting for volatility, the majority of actively managed domestic funds across market-cap segments underperformed their benchmarks on a net-of-fees basis over mid- and long-term investment horizons."


Link to article below. Not anything folks here will learn from, pretty much a fluff piece buit does have list of example low cost index funds. Just has the confirmation of low fee index funds beat higher fee active managed funds over the mid and long term timing.


https://finance.yahoo.com/news/guide...184923526.html

[tdv2]

Quote:

Originally Posted by 38Chevy454 Saw this morning, and thought I would post here. Excerpt cut from the article: "According to S&P Dow Jones Indices Risk-Adjusted SPIVA Scorecard: Year-End 2020, after adjusting for volatility, the majority of actively managed domestic funds across market-cap segments underperformed their benchmarks on a net-of-fees basis over mid- and long-term investment horizons." Link to article below. Not anything folks here will learn from, pretty much a fluff piece buit does have list of example low cost index funds. Just has the confirmation of low fee index funds beat higher fee active managed funds over the mid and long term timing. https://finance.yahoo.com/news/guide...184923526.html

No surprises....the evidence has been there all along....it's a zero sum game. In aggregate active funds must underperfom the market by the fees and expenses they incur. It's just simple math. I really don't understand why many refuse to accept this.

[VanWinkle]

Index funds make investing simple- 2-3 index funds in the allocation that works for you. You can get on with life, not spend all your time researching investments with a slim chance of beating the index. If you like trying to beat the odds, congrats to you and good luck. I'd rather be at the golf course and traveling to my kids in Colorado and Washington state.

VW

[Montecfo]

Well, that does it!

I am not going to invest in "the aggregate" of actively managed funds!

[OldShooter]

Quote:

Originally Posted by Montecfo ... I am not going to invest in "the aggregate" of actively managed funds!

Exactly! That is the logical takeaway from the SPIVA reports. The next sentence, also logically, is to say "I am going to invest with the above-average managers."

How to find those above-average managers? The most popular technique is to chase performance. That is foundation of the industry's advertising. For those who favor that approach, S&P has a report for you, too: The "Manager Persistence" report, also published every six months. Sadly, they are all the same: For any period, the top managers' results for the following period are at hardly better than random and more typically worse than random. The mantra is always proven true: Past performance does not predict future results.

That's the dead end; no one knows how to predict which managers will be above average in the future. Here's Nobel winner Eugene Fama's long time research partner Ken French with a short video discussion: https://famafrench.dimensional.com/v...-managers.aspx

Links:
S&P SPIVA gateway: https://www.spglobal.com/spdji/en/spiva/#/
S&P Manager Persistence gateway: https://www.spglobal.com/spdji/en/in...nce-scorecard/

[Markola]

There’s the benchmark average returns and there’s the (terrible) average returns of all mutual funds. I’ll take the average benchmark returns any day.

[Chuckanut]

Here's the latest SPIVA statistics:

https://www.spglobal.com/spdji/en/re...nsights/spiva/

Most large caps still can't beat the index.

[OldShooter]

Quote:

Originally Posted by Chuckanut ... Most large caps still can't beat the index.

Not just large caps. All stock pickers. Here's the math from a Nobel winner: https://web.stanford.edu/~wfsharpe/a...ive/active.htm and interview here: https://www.ishares.com/us/insights/...pe-on-indexing

[FREE866]

yep. As someone else pointed out I'm fine with market returns. Even if they are half the historical average the next 10-20 years I will still reach my goal. All I need.

Simple. Minimal cost . Tax efficient.

[RetiredAt49]

I had a significant amount of my assets with an AUM wealth management company for the past 1.5 years…. I just fired them and am moving to a 2-3 low cost index fund portfolio.

The company I used benchmarked themselves against the MSCI World index and YTD they are down 5 percentage points lower then their benchmark!

[ncbill]

If you want actively managed pick either Vanguard's Wellington or Wellesley (for more income)

Forget all the rest of the actively managed funds.

[retire to nature]

recently, I found etrade active management report for 2011. I wanted to check how it would be now. some funds are not even existing now. I stopped using them after my divorce and changed to S&P index fund. I should have fired it even before the divorce.

[F.I.R.E User]

My then EJ FA wouldn’t agree.

[OldShooter]

Quote:

Originally Posted by retire to nature recently, I found etrade active management report for 2011. I wanted to check how it would be now. some funds are not even existing now. I stopped using them after my divorce and changed to S&P index fund. I should have fired it even before the divorce.

Every year something north of 7% of stock picker funds are folded or merged due to poor performance and, consequently, investors bailing out. These funds are buried very deep by their former managers; it is almost impossible to find lists or any history of them. That is why it is important that performance studies consider "survivorship bias" as SPIVA does.

Quote:

Originally Posted by F.I.R.E User My then EJ FA wouldn’t agree.

Of course!

Almost a century ago, Upton Sinclair told us: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” Since then, nothing has changed.

[F.I.R.E User]

Quote:

Originally Posted by OldShooter Every year something north of 7% of stock picker funds are folded or merged due to poor performance and, consequently, investors bailing out. These funds are buried very deep by their former managers; it is almost impossible to find lists or any history of them. That is why it is important that performance studies consider "survivorship bias" as SPIVA does. Of course! Almost a century ago, Upton Sinclair told us: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” Since then, nothing has changed.

Right.

[JBTX]

While I always knew this I think Buffet said it most intuitively - and I am paraphrasing here.

You have active investors, and passive investors. By definition the passive investors performance follows active investors and equals the sum total of all active investors, which simplistically puts it at 50%. Now subtract active management fees and it is mathematically very difficult for active managers to even match index funds over the long term.

[OldShooter]

Quote:

Originally Posted by JBTX While I always knew this I think Buffet said it most intuitively - and I am paraphrasing here. You have active investors, and passive investors. By definition the passive investors performance follows active investors and equals the sum total of all active investors, which simplistically puts it at 50%. Now subtract active management fees and it is mathematically very difficult for active managers to even match index funds over the long term.

Exactly. The average active manager is guaranteed to underperform.

So. an intelligent guy says: "I get it. I have to hire an above-average manger in order to win." I have posted this link a number of times: Dr. Ken French on identifying superior managers: https://famafrench.dimensional.com/v...-managers.aspx

For those who want a little meatier chew, here's a productive way to spend 37 minutes: Dr. Eugene Fama on "Investors from the moon.":https://www.top1000funds.com/2015/12...the-moon-fama/

[Koolau]

Quote:

Originally Posted by ncbill If you want actively managed pick either Vanguard's Wellington or Wellesley (for more income) Forget all the rest of the actively managed funds.

Yep. The only managed funds I'll touch.

Other than that, low fee index funds are the way to go - as they have been since index funds were invented. Good to know some things don't change. YMMV

[Markola]

A more emphatic headline would be, “Active Funds Lose to Low Fee Index Funds - Again.”

[Stormy Kromer]

Quote:

Originally Posted by VanWinkle Index funds make investing simple- 2-3 index funds in the allocation that works for you. You can get on with life, not spend all your time researching investments with a slim chance of beating the index. If you like trying to beat the odds, congrats to you and good luck. I'd rather be at the golf course and traveling to my kids in Colorado and Washington state. VW

So true.

I wish I learned this years ago. Like in high school.

Thank you.