The Investment Adviser Association’s Active Managers Council has long maintained that the active-passive scorecards are overly negative on active management. Now, a new study supported by the Council adds to the growing body of research supporting this view and provides a more realistic methodology for assessing active’s performance.
“How the SPIVA U.S. Scorecard Understates the Performance of Actively Managed Mutual Funds” presents a compelling case for a more balanced view of active management across both equity and fixed income.
Professors K. J. Martijn Cremers of the University of Notre Dame, Jon Fulkerson of the University of Dayton, and Timothy B. Riley of the University of Arkansas conducted the study examining the SPIVA (S&P Indices Versus Active) U.S. Scorecard from S&P Dow Jones Indices. The Scorecard is a widely cited semiannual report comparing actively managed mutual funds to their respective S&P benchmark indices. The authors conclude that it “consistently and substantially” understates the performance of active funds due to certain empirical choices in its methodology.
Professor Riley underscores this point, noting: “Staying within the Scorecard’s framework, we identify substantially more value after modifying key empirical choices to better align with the actual mutual fund investor experience.”
Based on the authors’ analysis, the findings challenge several widely held SPIVA conclusions. In fixed income, active management shows significantly stronger results across both short- and long-term horizons. The study finds that 86% of assets in high yield bond funds outperformed over the five years ending 2024, compared to SPIVA’s report that just 46% of funds in the category outperformed.
On the domestic equity side, over the same period, the authors’ methodology indicates that 43% of assets outperformed, nearly three times SPIVA’s reported figure of 15%.
At the heart of the paper is a broader argument that SPIVA’s methodology could better reflect the experience of actual mutual fund investors. This includes revisiting asset weighting, incorporating the performance of funds prior to merger or liquidation, and comparing active funds to investable passive vehicles rather than theoretical indexes.
The authors outline three key modifications:
- Do not automatically classify funds that exit the sample as underperformers; instead, incorporate their performance prior to exit
- Weight results by fund assets rather than giving all funds equal weight
- Compare active funds to investable passive funds rather than hypothetical benchmarks
With such straightforward changes, the SPIVA methodology could provide investors with a clearer picture of performance while reinforcing the case for maintaining exposure to both active and passive strategies within a diversified portfolio.
The complete study can be downloaded and reviewed from either SSRN or the Council Academic Research page.
The Active Managers Council will host a live webinar with the authors who will discuss their research findings on May 21 from 3:00 p.m. ET to 4:00 p.m. ET. Interested participants can register here.
