99.43% of small cap growth funds have underperformed their benchmarks over the past 15 years. Ouch. Gonna take a heck of a wholesaler to sell that track record.


Nope, that’s not at all correct. I just looked at our small cap growth fund and - net of fees, of course - we’ve outperformed over the last 15 years and our fund isn’t even in the top 1/3 of actively managed funds.

That source is egregiously wrong. Depending on the time period you want to use, it’s pretty consistent that about 55% of actively managed small cap funds (across value to growth) outperform their benchmark.

And that site goes on to say active managers to worse in the international market? That’s categorically false.

You don’t need a good wholesaler. Just do some digging and don’t trust random sites with pretty infographics.

So in other words, they say something and you say something. Either way, need to show the actual statistics…

agree id like to see the stats, but small caps & emerging markets are one of the few places I still at least see some value in active management

The truth is probably somewhere in the middle, right? The numbers in the article seem quite pessimistic - I would need some more convincing if I were to believe that less than 1% of funds in any category underperform index benchmarks. On the other hand, STL, a fund salesman, is trying to tell us that *most* active funds in this category outperform their benchmarks. I’m open to statistics that support either claim, but both seem dubious at face value.

Well, I have material on the subject, but can’t really post it here. I’d recommend sticking to more trustworthy sources like Morningstar, Lipper, and other legit financial news sites. In the meantime, here’s a small cap growth fund (not mine) that illustrates the same point I made above. Literally the first fund I looked up.


Outperforms over the 15 year time period and it’s only in the 29th percentile. You’re better at math than I am, but I think we can agree at the very least a third of actively managed scg funds have outperformed over the last 15 years.

I suppose I could try to track down a fund that’s in the 55th percentile that still outperforms, but ain’t nobody got time for that.

Yeah, STL has incredibly biased views, I’m not taking a salesman’s word that his products outperform.

The SPIVA scorecard is one of the most trusted annual performance measurements in the industry. This is the 15th year it’s been produced by the S&P Dow Jones Indices. The data is pulled from the CRSP Survivor-bias-free US Mutual Fund Database which is maintained by the University of Chicago Booth School of Business.

Download the full report through the link I posted and you can read about the methodology and sources. There’s a chance your work has access to the CRSP database, go ask and see for yourself.

STL, remember level 1? Remember the term ‘survivorship bias’. No one should be shocked that underperforming funds go out of business and their performance is removed from a morningstar database. That’s how an ‘outperforming’ fund ends up in the percentile that you’re discussing.

I just disproved that in a matter of seconds. Are you doubting Morningstar?

Edit: I got lucky and stumbled onto the 55th %tile scg fund. You all got me. It underperforms by 8 bps over the last 15 years. However, active management does better in the value space (along all cap ranges) so the numbers I’ve read of 55% of small cap active managers outperforming over time still sounds spot on.


Again, in case you’ve skipped over my prior comment in your excitement, you’re ignoring survivorship bias. You are looking at a list of currently available funds in Morningstar and their historical performance. You are forgetting to include the many funds that were available throughout this period, performed terribly, and closed. Those are real returns, those are real losses that client’s suffered.

Morningstar is not incorrect, you’re just using it incorrectly and misinterpreting the numbers it’s giving you.

That’s a weak argument. The fact is, of the 300ish scg funds that have a 15 year track record, a little more than half of them have outperformed. When choosing a fund, hopefully you don’t just throw a dart. Pick a fund with a solid track record and a good team and you’re likely to outperform. Pick a fund that has zero assets run by a kid straight out of college…yeah, that one probably is going to suck and die off. So what?

Edit: Also, survivorship bias is also on the decline. There are far fewer actively managed products being launched today than there were 15 years ago. Put another way, if you wanted to throw a dart today, you’re likely going to have a much better outcome than you did 15 years ago. The field is shrinking, sure, but it’s for the better.

A weak argument? It’s not an argument I’m just telling you how Morningstar works. The funds you see are the one’s in existence. Those are not the only funds that have ever existed, and a true track record will include those funds that failed. Again, not an argument, just facts.

Survivorship bias is on the decline, that’s a good one. Spoken like a true product salesman… no facts, all opinion, the future is different, if you just do things my way you’ll outperform.

Fact is, the CRSP data is correct and those statistics are true. 99.43% of small cap growth funds failed to outperform their stated benchmark over the 15 years ending 2016. If you have a database more credible than the one maintained by the University of Chicago and used by Standard and Poor’s, please let me know.

The 99.43% number does seem fishy to me, and I’m no big proponent of public fund active management. So, I took a quick look.

On page 11 of the report it states there are 175 SCG funds with a 15 year history. At the 99.43% underperformance rate, that means only one fund outperformed in the SCG category over the trailing 15 year period. So, Sweep, show us two funds that outperformed and I need to question the report.

One thing that comes to mind is fees: how are they accounted for? I am guessing they didn’t use all share classes. S&P does have an incentive here as well, so while they are using good data they can still manipulate it to their ends.

Here’s data straight from Morningstar Direct…

The benchmark stated in the SPIVA report for the category of US small cap growth is the S&P SmallCap 600 Growth index. This index returned 10.38% annualized for the 15 years ending 12/31/2016.

When I do a mutual fund search, using the Morningstar category of US small growth, and filter by performance over the same time period, only 2 mutual funds show performance greater than 10.38%.

Lord Abbett Micro Cap Value I - 12.17%

Aberdeen US Small Cap Equity - depending on share class, roughly 11% annualized

Neuberger Berman has 3 share classes that outperformed, and two that underperformed.

There are a total of 462 funds which show 15 year performance. Now, many of these are different share classes of similar funds (A, C, I, etc.). Each fund has roughly 4-5 versions of itself…so we’re talking more like 100 unique funds. If we have 100 unique funds, and 2-3 of them outperformed, that gives us a success rate of 2-3%. Said another way, 97-98% underperformed.

Now, I’m sure the Morningstar category is not the exact way that SPIVA did this, the Micro Cap fund seems like maybe an outlier. But that’s semantics. The share class question is a great one, and I don’t know the answer to that. However, even if we use the cheapest share classes, we still only get 3 outperformers and something like 97 underperformers.

99.43% seems wrong.

Sweep the Leg…you work at Eagle Asset Mgmt?

So they do account for survivorship bias. Okay then…I’ll stick to my original argument that the report is categorically false. I’ve already shown a third of the funds handily outperform (net of fees - M* accounts for that) over a 15 year time frame.

this is getting good.

Like I said above, that’s not my fund.

And Huskie, you’re using the wrong BM. Most small cap managers use the appropriate R2000 bench…the R2000 Growth in this case. You can’t just pick a random benchmark. PMs do actually manage their portfolio against their stated BM so it’s not really fair to put them against another one.

That’s how a lot of these reports spit out the wrong info. They don’t use the right benchmark…Or share class for that matter. Yeah, most C Shares probably underperform vs their advisory share class. That’s 1.00% a year difference after all.

The Russell 2000 is a joke. Ever heard of index reconstitution arbitrage? It was basically invented to play the Russ 2000

dang is it that bad? Most of us should just learn programming language and follow the index 100%. Let the computer do the trading when/if needed.