Active Underperforms Passive on Risk-Adjusted Basis

A recent article in Advisor Perspectives outlines new research findings showing that actively managed funds underperform their benchmarks on a risk-adjusted as well as an absolute basis, and the findings hold true across asset classes and sub-classes.

The article outlines a summary of the 2019 report:

  • Over the past five-, 10-, and 15-year periods:
    • 84%, 97%, and 92% of actively managed large-cap funds have underperformed their benchmarks.
    • 65%, 80%, and 86% of actively managed mid-cap funds underperformed their benchmarks.
    • 77%, 89% and 87% of actively managed small-cap funds underperformed their passive benchmarks, “exposing the myth that active management works in the supposedly inefficient asset class of small-cap stocks.”
  • The majority of international equity funds (across all categories) underperformed their benchmarks.
  • A “large majority of actively managed fixed-income funds in most categories underperformed over all three investment horizons.”

The report’s authors concluded: “We did not see evidence that actively managed funds were better risk-managed than passive indices. Actively managed domestic and international equity funds across almost all categories did not outperform the benchmarks on a risk-adjusted basis.”