Investment belief: the judgmental vs. systematic debate
Latest independent SPIVA outcomes: the year-end data for 2016 is now available and continues to illustrate that only 10% to 20% of active managers live up to their market beating (more expensive) promises. Over 15 years in the US around 60% of all equity funds fail to survive the period (50% of fixed income funds disappeared too). Two new studies conclude that outperformance fails to persist.
Wealthflow’s academically proven ‘systematic’ investment approach is detailed within our new book ‘Celebrating 10 Years of Wealthflow’ (published January 2017) – available on request.
A number of short supporting notes are provided below that relate to the active/passive (judgemental/ systematic) debate.
Latest passive markets statistics
A report in the Financial Times revealed that:
Nearly 40% of US equity assets are in the hands of ETFs and index-tracking funds.
More than 20% of the US bond market is managed passively (based on research by Bank of America Merrill Lynch quoted in the article).
In another article:
Moody’s predicted that ETFs and index-tracking funds will represent 50% of all assets in seven years.
It was noted that investors had with withdrawn $340 billion in assets from active equity funds, while passive equity funds saw inflows of over $500 billion in 2016.
Goldman Sachs, Franklin Templeton and Pimco – all active shops – launched passive fund ranges.
According to an article in FTfm:
Passive mutual funds have grown four times faster than active funds since 2007.
Passive funds amount to $6.5 trillion, still only around one quarter the level of active funds at $24 trillion.
Latest evidence – SPIVA –Year-end 2016 – US and UK
The latest data from the SPIVA report illustrates that delivering on the active promise of beating markets is hard to keep. The US study now has a 15-year data record that shows that the longer the period under review, the higher the percentage of active funds that are beaten by their benchmarks. It is worth noting that over the past 15 years in the US, almost 60% of all US equity funds and 50% of fixed income funds have either been closed or merged!
The report provides no distinction between skill and luck.
Financial Times, 6th February 2017, Passive Aggressive: ETFs and index-trackers coin it with 20% share of US bond market. P15
FTfm, 6 February 2017, Passive to overtake active in US by 2014 says Moody’s. p3.
FTfm, 21 November 2016, Passive poised to profit from FCA plan.