Read a SPIVA scorecard from S&P Dow Jones Indices and explain what its main tables show.
Wei Ling has an Asia equity fund (she is an invented example). She asked her relationship manager whether active funds beat the market. He pulled up a chart showing her own fund ahead of its benchmark over the past year, and she had no way to judge how much that chart proved.
Arjun, also invented, went looking online and found an article claiming most active funds fail. He had the same problem. One fund's chart or one article doesn't show you how much weight it deserves.
The source people use most for evidence on how active funds have really done against the market is the set of SPIVA reports. SPIVA is short for S&P Indices Versus Active. S&P Dow Jones Indices publishes them. It is an index provider, which is a firm that builds and publishes share indices. The S&P 500 is one of its better-known indices.
A scorecard takes the actively managed funds in one market and sets each against the benchmark index for its category, across several time periods. Regions covered include the US, Europe, Japan, Australia and India, among others. Each regional scorecard covers the funds sold in that market. Inside a scorecard, funds are grouped into categories such as large-company shares, small-company shares and bonds. New editions come out regularly, and you can download any of them free from the S&P Dow Jones Indices website.
If there is a scorecard for the market or category your fund invests in, it is the closest evidence you will get for your own position. If nothing matches exactly, the nearest one is still useful, but be careful when you apply its results to a different market or category.
The main table asks one question: for this category and this period, what share of active funds came in below the benchmark? Periods usually run from one year up to fifteen or twenty years, so you can see whether the results shift as the time span gets longer.
Funds with poor results are often shut down or merged into another fund. Once they are gone, the funds that remain look better as a group than the full set of funds actually did. The error that comes from looking only at funds still around today is called survivorship bias. SPIVA includes the funds that closed or merged during each period, and most scorecards carry a table showing how many funds in each category survived.
Returns are also shown in two forms. Equal-weighted figures count every fund the same. Asset-weighted figures give larger funds more weight, which tells you how the average dollar did. That second measure ties back to Sharpe's arithmetic in Lesson 6.1, "Why active funds as a group trail the market after costs", which set out what has to be true on average.
Each fund is also judged against the benchmark for its own category. A small-company fund is measured against a small-company index. It is never scored against a broad market index it was never trying to match.
Across most categories and most long periods, most active funds have fallen short of their benchmarks. The exact share depends on the region, the category and the period. In some categories, over some shorter periods, the result has been closer. SPIVA numbers change with each edition, so look them up yourself. Read the current scorecard for the region that matters to you, and don't rely on a figure an article quoted a few years back.
The finding has tended to be more consistent the longer the period. That matches the arithmetic, because a cost gap that repeats every year adds up over time.
Even so, knowing the average doesn't settle your own choice. You aren't buying the average fund. You are trying to pick a good one. So the next question is whether funds with strong past results keep producing them. This is called persistence, and S&P Dow Jones Indices covers it in separate reports called persistence scorecards. They take the funds ranked in the top group in one period and count how many were still in the top group in later periods. They also show how often top funds later dropped to the bottom. If skill were easy to spot and stayed with a fund, many top funds would remain at the top, and these reports check whether that has happened.
Persistence evidence matters most when you pick an active fund by its track record. That is how most people choose, and it is what most fund marketing encourages.
Later, Wei Ling downloaded the latest scorecard for the region closest to her Asia equity fund. In the main table she chose the category nearest her fund and followed the row to the longest period listed. She then looked at the survivorship table to find how many funds in that category had closed over the same span.
To do the same, go to the S&P Dow Jones Indices website and download the latest SPIVA scorecard for the region that covers your fund's market, or the nearest one. Open the main table and choose the category closest to your fund. Follow it across to the longest period shown and write down the share of active funds that underperformed the benchmark. Then turn to the survivorship table and see how many funds in that category closed or merged during that period. If you want to go further, open the persistence scorecard and check how many top-ranked funds stayed on top in later periods.
In the activity below you will do the same: download the latest scorecard for one region and write down the share of active funds that underperformed over the longest period shown.
Download the latest SPIVA scorecard for one region. Write down the share of active funds that underperformed over the longest period it shows.
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