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November 8, 2018

Do Active Asset Managers Outperform?


Asset managers attempt to differentiate from competitors, in what would otherwise be a commoditized industry, by claiming a proprietary analytical edge that they can use to generate market-beating returns. Asset managers must do this in order to justify premium pricing (thus premium profit margins) on their products.

To back up its claims, the industry then cherry picks mouth-watering information to present to investors. Of course, the caveat "past performance may not be repeated" is buried in the endnotes, but by the time investors get there they're already salivating in anticipation.

So does the industry actually deliver on its promise to provide market-beating returns in exchange for premium fees?

Standard and Poors has for years tracked active manager performance against their benchmarks. The tables below display the proportion of actively-managed equity funds in the US and Canada that underperformed their benchmarks over the short and long term.

As you can see, on average active managers have persistently failed to outperform their benchmarks.

SPIVA US Scorecard – Mid-year 2018

SPIVA Canada Scorecard – Mid-year 2018

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