Wealth Advisor
Are speed and agility beating just painfully sticking to the track? Over the last decade, passives enjoyed USD3,8 trillion inflows whilst USD185 billion left active funds. Half of US funds are expected to be passive by 2025.

Mike Lledo CA(SA)
Independent
Financial Services Consultant
What does the scoreboard say?
The 2021 SPIVA Scorecard (S&P DJI) has now been released.
According to Berlinda Liu, Director, Global Research & Design, S&P: ’Global equity markets powered ahead in 2021, despite the ongoing COVID-19 pandemic. As rocky vaccine rollouts and new coronavirus variants prolonged the pandemic, governments and central banks continued their strategies of generous fiscal spending and loose monetary policy. The S&P 500 gained 28,7% in 2021, capping an impressive 100,4% cumulative advance over the past three years.
‘The positive market performance translated into good absolute returns for active fund managers, although relative performance continued to disappoint: 79,6% of domestic equity funds lagged the S&P Composite 1500 in 2021.’
The numbers over one to ten years in diverse economies, and in diverse regions, tell a story. Long term, a more passive approach generally gets better results. South Africa seems to do better than its counterparts. And there is little consistency that active investments do better in more volatile markets as we have experienced over the last two years.
Indices
- South Africa – DSW capped (no stock more than 10% of index)
- US – S&P 500
- Europe – S&P Europe 350
- Japan – S&P/TOPIX 150
- Australia – S&P/ASX 200
- India – S&P BSE 100 (no data for 10-year timeframe)
Persistency, fees and diversification are keenly debated. Then there are arguments by active fund managers that they outperform on a risk-adjusted basis. ‘Among domestic equity funds, while 90% have underperformed the S&P Composite 1500 over the past 20 years, an even greater 95% did so on a risk-adjusted basis’ (S&P).
And then how does one explain that over the last 20 years, nearly 70% of domestic equity funds and nearly half of fixed income funds closed shop?
The philosophical and technical debates abound. Is it arguably too complex for the average investor?
Everybody has their own race
- Don’t oversimplify the debate nor overcomplicate it. Just understand that options in the investment universe continue growing.
- Define your framework and purpose – inflation-beating returns, time horizons (short, medium, long term), risk appetite …
- Choosing the right investment benchmarks and targeted returns remains the real challenge. There’s no point in beating the wrong benchmark.
- Find solutions ‘fit for purpose’. It won’t be one size fits all.
- The solutions may be active, passive, hybrids or a combination.
- The experts need to demonstrate how their solutions aim to achieve your purpose.
- After all, it’s your race – find the right gear.