Active management failure points to value of index investing
The failure of active managers to outperform the index is evidence the latter are reasonable benchmarks and best accessed by exchange traded products according to S&P Dow Jones.
Following a recent visit to Australia S&P Dow Jones Indices (S&P DJI), Global Head of Financial Advisor Channel Management, Shaun Wurzbach, said while the local exchange traded fund (ETF) market continued to grow it was worth considering if an index were effective for equity investments.
Wurzbach said S&P DJI had conducted performance analysis - S&P Index vs Active (SPIVA) - around passive and active management with recent results showing that apart from small-cap managers most active Australian equity managers did not beat their respective benchmarks.
"One way to judge if an index is effective is to determine if it measures an asset class or a market in an investible manner," Wurzbach said, stating S&P DJI took an interest as ETFs "are index-trackers are the delivery vehicles of index effectiveness and index-based innovations".
"With our index benchmarks demonstrating that they are hard for many actively managed mutual funds to beat (with the notable exception of Australian Small-Cap), we conclude that indices are effective in measuring markets and asset classes, which can be accessed by ETFs that track these indices."
Wurzbach said while indexing effectiveness and indexing innovation may be beneficial for the market the burden of due diligence, as the result of newer and more complex ETF products, was falling to planners and wealth managers, and institutional investors.
Recommended for you
Perpetual has seen AUM rise 6 per cent in the last quarter but the departure of a longstanding JOHCM fund manager led to outflows of $2.2 billion from his strategy.
In the latest Meet the Manager profile, Money Management speaks with Michael Skinner, founder and managing director at Blackwattle Investment Partners.
Global fixed income fund Bentham Global Opportunities has been added to several major platforms, enabling it to be accessed more easily by financial advisers.
Following yesterday’s news about First Sentier Investors closing four investment teams, a second global asset manager has announced it is closing its only dedicated Australian fund.
