S&P Dow Jones Indices just published its mid-year scorecard of S&P indices versus active funds, SPIVA. The news is not good for disciples of active management.
According to the latest SPIVA report, for the 12-months ending June 30th, 2014, a majority of active managers trailed their benchmark index. The numbers do not reflect well on active managers: 59.78% of large-cap managers, 57.84% of mid-cap managers and 72.79% of small-cap managers underperformed their benchmarks.
But the really bad news is that managers did even worse over longer terms.
The past five years have been great for investors. Volatility has been low, markets have been rising, but still, according to S&P, over 70% of managers across all capitalization and style categories failed to deliver returns higher than their respective benchmarks.
This will not be good for the managers at the Canadian Pension Plan Investment Board. The CPPIB has attracted attention lately as more Canadians question why the plan bothers paying out millions of dollars in compensation to active managers who, by the data, don't perform. A recent report from the Fraser Institute investigated fees being paid at the CPPIB. According to the report:
- External management fees have risen from $25 million to $782 million in six years.
- The transaction costs of executing the CPPIB’s investment strategy are nearly twice as large as its operating expenses.
- The investment strategy of the CPP now costs nearly as much as all its operating expenses, including the government’s collection of all contributions and paying of benefits.