The SPIVA® U.S. mid-year Scorecard came out on September 8th. This is a set of data prepared by S&P to show the percentage of active fund managers that have unperformed their benchmark index over the previous one, three, and five year periods. This most recent data for U.S. domiciled equity mutual funds showed that a staggering percentage of actively managed funds have been outperformed by their relevant index over the previous 12 month period; 60% of U.S. domestic equity funds, 70% of global equity funds, 75% of international equity funds, 81% of international small cap funds, and 65% of emerging markets funds have failed to outperform their benchmarks. Maybe this could be expected in a bull market; when stocks everywhere are increasing in value, it might be harder to outperform the index without holding all of the stocks in the index.

One might argue that a bear market is when active managers should really be able to use their analysis and predictive abilities to show their value, right?

I looked back to the SPIVA® U.S. year-end Scorecard from 2008. In the twelve months that encompassed 2008, one of the worst global bear markets in history, U.S. domestic equity funds underperformed 64% of the time, global equity funds underperformed 60% of the time, international funds underperformed 64% of the time, international small cap funds underperformed 50% of the time, and emerging markets funds underperformed 65% of the time. It can be seen that active funds outperformed their benchmarks more often in the bear market of 2008 than in the bull market of 2013/2014, but we are still talking about a significant majority of funds in all categories underperforming their benchmarks.

Does active management prove its value in a bear market? Maybe. In this data sample active management appears to have been helpful, but investors were still better off holding the global market portfolio.

Actively managed funds