Active vs. Passive Funds in 2024: It’s Deja Vu (All Over Again)

“It’s déjà vu (all over again),” is a quip often attributed to beloved baseball philosopher Yogi Berra. He might as well have been referring to the highly regarded and much awaited 2024 S&P Global Report on the comparative performance of actively managed and passive mutual funds. Its conclusions will come as no surprise to readers of Humble Dollar: Index funds drubbed those run by portfolio managers.

Here’s a quick read. Most actively managed stock funds underperformed their relevant benchmarks. Fully 65% of managed large cap stock funds failed to beat the S&P 500, a worse showing than in 2023 and about average for over two decades. To be fair, differential performance was slightly more favorable to active bond funds and notably more so among small caps.

Consistent with voluminous previous research, the further out the time horizon, the greater the advantage of passive funds. Now get this. Over the 15-year period ending in December, actively managed funds could not outperform their passive counterparts in any category, including small stock funds.

Will these latest data move the needle much? Almost certainly not, given the inability of mountains of prior evidence to do so. The egregious monetary rewards of nonproductive financial advising and asset-based mutual fund management pose formidable hurdles. Commissions are down or nonexistent and expense ratios have contracted, but the era of propaganda and outright skullduggery of financial professionals yet endures.

Here’s a case in point. ETF Trends is a popular haven for advisors and purveyors of ETFs and mutual fund companies promoting active management to their adoring disciples, The title of a recent article goes like this: “2024 SPIVA Report Reveals 2 Areas Active Outperforms.” How’s that for a “balanced” introduction to the report’s results?