I have spent this morning cleaning up my email in box and catching up on some reading. (A sure sign of procrastination before my upcoming CFA exam.)
During my reading I came across an article written by John Kavanagh published in the Sydney Morning Herald - The importance of being idle.
The article looked at analysis conducted by Standard & Poor's regarding managed equity and fixed interest Fund managed fund returns for the 5 year period ending 31st December 2008. S&P found:
" that the S&P 500 index outperformed 71.9per cent of actively managed large-cap (investing in large-capitalisation stocks) funds. The S&P MidCap 400 index outperformed 79.1per cent of actively managed mid-cap funds and the S&P SmallCap 600 outperformed 85.5per cent of small-cap funds."
The report also looked at results for the 2008 year separately and found the following:
BEAR MARKETS - PERCENTAGE OF ACTIVE FUNDS OUTPERFORMED BY BENCHMARKS
All Large-Cap Funds 54.3
All Mid-Cap Funds 74.7
All Small-Cap Funds 83.8
Large Growth 90
Large Core 52
Large Value 22.2
Mid Growth 89
Mid Core 62.3
Mid Value 67.1
Small Growth 95.5
Small Core 82.5
Small Value 72.6
SOURCE: STANDARD & POOR'S
Apart from the returns for the Large Value segment, the data points out that active managers have underperformed benchmark indices last year. This result flies in the face of the argument that active managers better protect clients during bear markets.
The report adds further evidence that active management of investments does not benefit investors and provides further support for the approach taken by A Clear Direction in using passive, index based investments. Please take a look at our Building Portfolios page for more information about this philosophy.