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March is the month where passive investment managers normally walk around with a smile on their face and a spring in their step. The reason for their merry moods is the release of the year end SPIVA Scorecards which normally take place in the month. SPIVA or its full name of the S&P Indices versus Active Scorecards have been the benchmark measurement for active management performance for the past 2 decades.

The US Scorecard for the 2022 calendar year has recently been released (as have the ones for Australia, Canada & South Africa at this stage) which compares the performance of a large number of active US mutual funds against appropriate indices as benchmarks. Their method of measurement is to determine the percentage of funds that underperform said benchmark.

In their headline graphic for the US markets they have compared all the Large-Cap funds against the S&P500. They use the outline of the country to show just how few active managers have actually managed to outperform and as this map of the US shows only 13.49% of these funds managed to outperform the index over 5 years. 

The 2022 scorecard demonstrates just how tough the year was for investors.  The concerns around inflation, and the rising interest rates enacted to counter this, caused losses across asset classes with both equity markets and bond markets selling off sharply.  In the US the S&P500 finished with a total return of -18%, whilst fixed income offered no diversification benefits as the Bloomberg US Aggregate index had a total return of -13%.  Bull markets should in theory present opportunities to active management as they often have more flexibility to utilise cash and alternatives to reduce the investment exposure.  So a good active manager could in theory outshine in a bull market and a number of them managed to achieve this in 2022. 

In their measurement of the calendar performance of Large-Cap Domestic Equity funds S&P Dow Jones Indices found that 51% underperformed the index (or conversely 49% outperformed). With the same odds as a simple coin toss an equal number of managers outperformed as underperformed. What the graphic does illustrate is that in 2022, during a very tough market, active management delivered their fourth best ever result since the advent of the SPIVA Scorecard, and their best result for 13 years.

But this does very little for the active management argument. Even in one of their best years half of them managed to underperform. A further look at the graph indicates that on average in any given year around 63% of active fund managers will underperform the index in any given year, leaving just 37% managing to beat the index in a calendar year. The problem for investors and financial advisors is that it isn’t always the same fund outperforming each year.

A fund may have times of feast and times of famine in terms of their relative performance and long periods of outperformance are very rare. This becomes apparent as we look at the data table for the different categories of active US equity funds.

To make the table a bit easier to view we have used green text where the data reflects the majority of active managers outperforming the category comparison index.  We have also highlighted in red where more than 80% of active managers have underperformed (so less than one in five have outperformed) and highlighted in a darker shade of red where that number shows that underperformance by more than 90%  (scarily less than one in ten have outperformed).   

It is clear that there is a lot more red, and more specifically dark red in this table than the few instances of green.  One can also see that the longer one invests for, the more the odds increase in the favour of the index.  If you had invested in the S&P500 you would have beaten 87% of active managers over 5 years, 91% over 10 years and a massive 95% of them over 20 years. 

2022 was a decent year for active management, well at least for half of them.  And that is almost the best result that one can expect.  But the fourth best year for active management since the advent of SPIVA but it doesn’t really move the dial for the overall levels of gross underperformance.  This is probably the reason that the majority of global investors are favouring passive investment strategy and if you spot one of the Magwitch Offshore team you’ll continue to see our smiles and the spring in our steps.


Magwitch Offshore is a leading provider of Global Balanced ETF portfolios with products in all major currencies. Magwitch utilises an advisor distribution model and their portfolios are available through offshore endowment structures provided by some of the larger Insurers.