Scorecards and investment decisions By Anthony Warr

Scorecards and investment decisions By Anthony Warr


In the investment management world probably the most widely used way of keeping score is to see how an investment manager is going against their stated target index or benchmark.

  • Scorecards paint a negative picture for active management
  • Evidence presents a better approach, with a consistent and reliable long term outcome

S&P Dow Jones Indices has been the de facto scorekeeper of how active fund managers perform versus respective market indexes. S&P now publishes SPIVA scorecards in 10 regions around the world – including Australia.

In Australia, they publish 5 year results of hundreds of funds. The 30 June 2015 reports show that around:

  • 70% of domestic equity funds underperformed,
  • 90% of international funds underperformed, and
  • 85% of bond funds underperformed.

In the US they now publish 10 year results covering 1000s. The 30 June 2015 report shows around:

  • 89% of US managers underperformed.
  • 4% and 75% underperformed the benchmark over 5 and 10 years respectively.

The Persistence Scorecard shows no funds in the top quartile of performers at end of one year remained in the top quartile at the end of the five-year period.

The full reports can be accessed here: SPIVA REPORTS

The scorecards paint a negative picture regarding the lack of long-term performance and persistence in fund returns.  What is clear is just how hard it is for active managers to outperform over reasonable time horizons like five or 10 years, and for investors to find the funds that do outperform over the long term.

This leaves us with two decisions.

Decision 1 – Active or Passive investing?

If your plan is built using historical market return assumptions, and this is the outcome for active managers, would you implement your plan with these odds?

If your answer to take a Passive approach, you still have one more decision.

Decision 2 – Index or Asset Class investing?

Index investing and Asset Class investing are two ways to implement a passive approach. While they have similarities, there are important differences.

Index investing attempts to replicate the performance of an index. Asset Class Investing is based on asset classes and attempts to capture the performance of a specific market segment.

At WARR HUNT, we believe in Asset Class Investing.  Decades of peer-reviewed financial research guide the way. Our approach is based on facts and evidence, not opinions or forecasts, and the results show a consistent and reliable outcome.

By investing in low-cost, broadly diversified financial instruments and taking only the risk that is necessary and appropriate, our clients effectively capture the returns the markets provide.

If you would like to learn more about WARR HUNT’s evidence based approach to investing please contact us.