SPIVA report - lessons
TLDR - Index vs. active fund comparison from SPIVA report
I have had a few busy weeks at work, evening and weekends sacrificed. So I had taken an unplanned mini hiatus from the blog. Hopefully things will settle down to allow me to go back to the regular rhythm of 2 to 3 posts a week as normal.
Now to the topic at hand. I came across the SPIVA report while browsing some popular financials blogs that I follow including kuvera.in and it makes sense to reiterate the points around index investing.
The key message from the report is this chart below.
Active investing lags behind passive investing in general. Let us break this chart down for large cap funds vs. BSE 100 index.
1 Year - 91.94% of all large cap equity funds underperform the index.
No biggie you say, since equity investments are for the long term, 1 year is not a good comparison. Yes, that is a fair commentary.
3 Years - 90.59% of all large cap equity funds underperform the index.
This is a little concerning, but in my books long term is 7 years and above. I could still ignore the 3 year period
5 Years - 57.55% of all large cap equity funds underperform the index
More than half of the funds under perform. This is definitely getting into an area of concern.
10 Years - 64.23% of all large cap equity funds underperform the index
The surprising increase in the underperformance is shocking to say the least. Only 35% of the large cap equity funds beat the index. That too in an environment where large cap funds were using some dubious methods to beat the index. I would expect the long term under performance to get even worse over the next ten years post the re-categorization from SEBI.
The report is a good read and covers the other types of funds as well and how equal weighted index will compare against replicated indexes.
The report makes a good case for moving towards index funds over actively managed funds. Hopefully the larger investment community wakes up to this reality and switches over as well and as retail investors we will have more index funds options in the mid and small cap fund space to choose from in the near future.