The Passive Investing Reign: Is an Active Comeback Finally Brewing?
For years, the investment world has witnessed a steady shift towards passive strategies. The annual S&P Indices Versus Active (SPIVA) scorecard consistently highlights the difficulty active fund managers face in outperforming the market over the long term. But some aren’t accepting this as the final word. Capital Group, a prominent investment firm, is pushing back, arguing that the SPIVA scorecard doesn’t tell the whole story.
Capital Group Challenges the Narrative
Capital Group contends that its performance stands apart from the typical underperformance seen in active management. They released a statement ahead of the full-year 2025 SPIVA U.S. Scorecard release, questioning the emphasis on passive investing as a guaranteed path to success. According to Capital Group, from inception to the end of 2025, 91% of their equity and multi-asset strategies, and 93% of their fixed income strategies, beat their benchmarks gross of fees. This translates to 84% and 74% net of fees, respectively.
The firm has a reputation for a disciplined, long-term approach. Barron’s named Capital the best fund family of 2025, noting factors like lower fees, performance-based bonuses, stable investment teams, and a reluctance to launch new funds frequently – all characteristics often linked to better performance.
A Decade of Data: Passive Still Leads
However, a closer gaze at the numbers reveals a more nuanced picture. An analysis by the Financial Times compared the performance of several of Capital Group’s largest equity mutual funds against passive benchmarks like the Nasdaq-tracking QQQ ETF and the Vanguard 500 index fund over the past decade. The results? Capital’s funds generally underperformed these passive options.
Even extending the timeframe back to November 2000 didn’t change the outcome – passive funds continued to outperform Capital Group’s offerings.
The Nuances of Benchmarking and the Power of Beta
The debate highlights the importance of benchmarking. Capital Group points out that the SPIVA study uses an equal-weighted analysis, potentially skewing the results. They argue that a dollar-weighted analysis, considering the size of investments, would offer a more accurate picture. However, even with these considerations, the long-term trend favors passive strategies.
The sheer power of “cheap beta” – the returns generated simply by tracking a broad market index – has been a dominant force, particularly in the last decade with the strong performance of US tech stocks.
The Role of Active Management
Despite the challenges, active management isn’t without value. It plays a crucial role in market efficiency and provides an alternative for investors who prefer a human touch. However, the data suggests that for most investors, the simplest and most cost-effective approach remains a broad, low-fee passive fund.
Frequently Asked Questions
- What is the SPIVA scorecard? It’s an annual report by S&P Dow Jones Indices that compares the performance of active fund managers against their benchmark indices.
- Is active management completely useless? No, active management can add value, but it’s incredibly difficult to consistently outperform the market over the long term.
- What is “cheap beta”? It refers to the returns generated by simply tracking a broad market index at a low cost.
- Should I switch to passive investing? For most investors, a low-cost, diversified passive fund is a sensible choice.
Further reading:
- Financial Groundhog Day came late this year (FTAV)
- Time is a flat circle — active vs passive edition (FTAV)
- Once more unto the ‘active comeback’ breach (FTAV)
What are your thoughts on the active vs. Passive debate? Share your perspective in the comments below!
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