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2019 was a remarkable year for equity markets in the U.S. and around the world. Boosted by an accommodative Fed policy, low unemployment, low inflation, and continued global growth, risk assets across the board did well—all of the benchmarks tracked in the SPIVA U.S. Scorecard had positive returns, with the S&P 500® Value leading the pack at 31.9%.

The Information Technology-heavy and more internationally diversified companies of the S&P 500 pushed the index to its second-highest annual return (31.5%) since 2001 and fourth-highest return in 30 years, rising in 10 of the 12 months. The S&P MidCap 400® (26.2%) and the S&P SmallCap 600® (22.8%) also had strong years.

While these tailwinds helped U.S. equity managers post excellent absolute returns, none of them translated into active managers’ superior performance compared with their benchmarks. For example, 70% of domestic equity funds lagged the S&P Composite 1500® during the one-year period ending Dec. 31, 2019, making for the fourth-worst performance since 2001.

SPIVA U.S. Year-End 2019 Exhibit 1

Large-cap funds made it a clean sweep for the decade—for the 10th consecutive one-year period, the majority (71%) underperformed the S&P 500. Their consistency in failing to outperform when the Fed was on hold (2010-2015), raising interest rates (2015-2018), and cutting rates (2019) deserves special note, with 89% of large-cap funds underperforming the S&P 500 over the past decade.

Mid-cap funds could be excused for some swagger when presenting to investment committees: 68% of mid-cap funds beat the S&P MidCap 400 in 2019, the third consecutive year the majority did so. Similarly, 62% of small-cap funds beat the S&P SmallCap 600. However, the awkward long-term statistic remains that 84% of mid-cap funds and 89% of small-cap funds underperformed over the past 10 years.

The perennial growth versus value debate continues, with the continued pain for value funds particularly pronounced in 2019 and visible across all three market cap segments. A staggering 97% of large-cap value funds lagged the S&P 500 Value in 2019, joined by 65% and 80% of their mid- and small-cap peers underperforming their value benchmarks, respectively. The situation was neatly reversed on the growth side, however, with 67%, 91%, and 86% outperforming the S&P 500 Growth, S&P MidCap 400 Growth, and S&P SmallCap 600 Growth, respectively.

There was little to debate over the full decade though, with scant difference between growth and value funds’ likelihood of underperforming their benchmarks: large cap (90%, 92%), mid cap (78%, 88%), and small cap (82%, 97%) all delivered painful results.

Global equities followed the U.S., with 46 of the 50 countries in the S&P Global BMI up on the year (in USD terms). Emerging market funds had a better go of it, with 64% beating the S&P/IFCI Composite. Only about 40% of global, international, and international small-cap funds beat the S&P Global 1200, S&P International 700, and S&P Developed Ex-U.S. SmallCap, respectively.

Government funds struggled across tenors, with 98%, 69%, and 73% underperforming in the long, intermediate, and short-term buckets, respectively. Government bond funds in general had a miserable decade, as an incredible 99% of long bond funds failed to clear the bar over the past 10 years, along with 80% and 70% of intermediate and short-end bond funds, respectively.

Investment-grade funds had split results: while a mere 5% of long-dated funds outperformed, a healthy 68% and 63% of intermediate- and short-term funds managed to do so, respectively. High-yield funds had little reason to celebrate, with 65% falling short. These results matched their longer-term track records: more than 97% of high yield and investment-grade long funds fell short of their benchmark over the decade, but roughly half of the investment-grade intermediate and short- term funds did outperform.

Elsewhere, solid majorities of municipal debt funds and global income funds outperformed, while MBS and loan participation funds disappointed in 2019.

SPIVA’s report accounting for survivorship bias continues to be a valuable cautionary tale. Fund liquidation numbers across segments regularly reached into the 60% range over a 15-year horizon. In line with 2018, roughly 5% of domestic equity funds disappeared in 2019, with ~40% having been confined to the history books over the past decade. International equity funds posted similar numbers for 2019 and the 2010s, but only ~30% of funds in most fixed income categories were merged or liquidated over the decade.

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