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Active Equity Funds Still Trailing Passive Indexes

By Bernice Napach

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What You Need to Know

  • More than half of active U.S. equity funds underperformed their indexes in the year ended June 30.
  • Small-cap and mid-cap active funds had more disappointing performance than large-cap funds.
  • Value funds bested growth funds in absolute returns.

The hoped-for revival of actively managed mutual fund performance has disappointed once again.

For the year ended June 30, roughly 58% of active large-cap equity mutual funds underperformed the index, according to S&P Dow Jones Indices, publisher of the SPIVA (S&P Indices Versus Active) Scorecard.

Actively managed small- and mid-cap funds performed even worse than their large-cap counterparts. Seventy-eight percent of of active small-cap funds and 75.5% of active mid-cap funds underperformed their respective indexes — the S&P SmallCap 600 and the S&P MidCap 400.

This represents a reverse of the pattern that prevailed for the year ended June 30, 2020, and for calendar years 2020 and 2019. In all those periods, a substantially larger percentage of actively managed large-cap funds underperformed their benchmark indexes than small-cap and mid-cap funds, as the chart below shows.

chart showing relative performance of active funds vs. indexes

For example, in calendar year 2020, 46% of active small-cap funds and 51% of mid-cap funds underperformed their benchmarks compared with 60% of large-cap funds.

Despite the relative underperformance of actively managed funds compared with their respective indexes, their absolute returns for the year ended June 30, 2021, were stellar, reflecting the rebound in U.S. equity markets.

Domestic equity funds gained 43.3% on an asset-weighted basis for the year overall, with small-cap funds leading — up 54.6% — followed by mid-cap funds, up 53.2%, and then large-cap funds, which returned 41.4%.

Value bested growth for absolute performance in the mid-cap and small-cap categories, but it  had only negligibly higher returns in the large-cap category.

Bernice Napach

@Think_Napach

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