GGLE BENEATH THE
nal Fund Investors Sharpe/Fama//Kaplan doctrine that active managers must stick to a bias above all else. This has been fortified by SEC and other regulators. Now the industry says active funds do not deliver within those confines. Exhibit A. https://us.spindices.com/ documents/spiva/spiva-usmid-year-2016.pdf Let us not forget that the greatest asset concentration and thus supertanker today is the S&P500 index itself and all replicants therein. The SPIVA report therefore becomes self-fuelling: index product momentum drives up the index, SPIVA then reports that active managers cannot outperform that momentum, active managers either diverge to find better capitalisation/valuation, which gets slammed by compliance teams as tracking error and
Edition #11
attribution reports point to copious off-benchmark risk being added; or staying in the index and becoming accused of being ‘quasi-trackers’ maligned by popular media and Active Share. Then more money goes into the index via index products and around we go again. It is self-fulfilling and almost inimitable (until the herd decides to sell). It is arguably efficient in terms of price but not in terms of valuation. I am not a fan of massive free float indices, as you may have already guessed. What then empirical evidence exists that challenges the might of SPIVA? Little. I googled ‘active versus passive fund study’. For many the Google search is the de facto source of all fact and opinion. Let’s ignore how search hits are themselves manipulated and agree that
few tend to look beyond the first few pages of a related search. My search returned; 15 pages of hits; within the first 3 pages (about 25 hits) there was only one pro active study (Defaqto) from 2015, which while thought provoking is lacking in statistical firepower. Other studies do exist but very few post 2011. The sheer weight of propassive statistical studies is thus overwhelming. Whilst few point towards any sort of smoking gun other than cost or EMH; logically, if being empirical, one has to be led by the weight of evidence. One caveat is the problem with republishing. This occurs when a study is published and then cited/republished by a number of other sources.
| March 2017 | www.transparencytaskforce.org | The Transparency Times
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