Passive Management vs Active Management: 20 Years of SPIVA Data Decide
For more than two decades, the question of relative performance between passive and active management has fueled debates and investment choices. Thanks to the SPIVA® Scorecard 2023 report published by S&P Dow Jones Indices, we have a robust and objective database allowing long-term analysis of active funds' ability to outperform their benchmark indices. This article details the major insights drawn from over 20 years of data, particularly on US, European, and French markets, and explains why passive management through ETFs is now established as the dominant strategy for individual investors.
SPIVA Scorecard 2023: An Unambiguous 20-Year Finding in the United States
The SPIVA US Scorecard 2023 analyzes the performance of active US equity funds relative to the S&P 500 index over various periods. Over 20 years, the most striking data point is that 92.2% of active US equity funds underperform the S&P 500 net of fees.
Period
% of Funds Underperforming S&P 500
1 year
75.3%
5 years
85.7%
10 years
90.1%
20 years
92.2%
For example, a popular active fund like the Fidelity Contrafund (ISIN US3159116939) shows an annualized return of 8.1% over 20 years, compared to 9.1% for the S&P 500 total return. This clearly illustrates the structural difficulty managers face in creating value after fees.
Europe: 82% of Equity Funds Underperform Over 10 Years
The SPIVA Europe Scorecard 2023 confirms a similar trend, although slightly less pronounced than in the United States. Over 10 years, 82% of active European equity funds have underperformed the MSCI Europe net dividend index.
The challenge is even more pronounced in certain countries, notably France. Over 10 years, 78% of active French equity funds have underperformed the CAC 40 NR (net reinvested dividends).
Why Is This Underperformance Structural?
Several factors explain this near systematic defeat of active management:
High management fees: active funds charge on average between 1.5% and 2.5% annual fees. These fees mechanically reduce final performance.
High turnover: frequent trading generates transaction costs, taxes, and sometimes unfavorable tax consequences.
Behavioral biases: managers, like individual investors, are subject to cognitive biases (overconfidence, loss aversion, herding) that harm performance.
Fees in Detail: A Devastating Long-Term Impact
To quantify the impact of fees, let’s take the example of an initial capital of €10,000 invested over 30 years with an average gross annual return of 7%. Without fees, the final capital would be €76,123.
Annual Fees
Final Capital After 30 Years
Impact Compared to No Fees
0.20% (MSCI World ETF)
€68,600
-9.9%
1.5% (average active funds)
€41,800
-45%
2.5%
€33,200
-56.4%
This means that with 2% annual fees, the final capital is reduced by nearly 45% compared to a fee-free investment. This cumulative and exponential phenomenon illustrates why fees are the number one enemy of long-term performance.
Exceptions That Prove the Rule
Despite this strong trend, some active managers manage to consistently outperform their benchmark, sometimes justifying higher fees. Among them, we can mention:
Comgest Monde (ISIN FR0010149120, TER 1.7%): this international equity fund has delivered an annualized outperformance of +1.3% relative to the MSCI World net over 15 years.
Sextant PME (ISIN FR0010228199, TER 2%): specializing in French small caps, it has outperformed the CAC Small NR by +2.1% annualized over 10 years.
However, these cases remain rare, and the majority of active funds fail to replicate such performances over time.
The Market Efficiency Paradox
An argument often raised against passive management is the “efficiency paradox”: if everyone invests passively, who will price the assets? Indeed, active players are needed to analyze, evaluate, and arbitrate assets so that prices reflect available information.
This paradox highlights that active management has an essential economic role, but this role does not guarantee that all active managers will beat the market. The majority finance price discovery, while a minority capture outperformance.
Does Active Management Still Have a Place?
Despite the statistical superiority of passive management on major developed equity indices, active management retains niches where it can create value:
Bonds: less efficient markets where credit and duration choices can add performance.
Small caps: companies less followed by analysts, offering arbitrage opportunities.
Emerging markets: more volatile and less liquid markets where local knowledge can make a difference.
These segments often justify higher fees and rigorous manager selection.
Quantified Conclusion: The Winning Choice for the Individual Investor
For the French individual investor, investing via PEA or CTO in a broad, diversified, and low-cost ETF like the Amundi MSCI World UCITS ETF (ISIN FR0010756098, TER 0.18%) offers a high statistical probability of outperforming 90% of active funds over 20 years.
This approach minimizes fees, avoids behavioral biases, and captures global equity market growth with simplicity and efficiency. The 2023 SPIVA data are unequivocal: passive management is the most rational and performant long-term strategy for the majority of investors.
Disclaimer
The information contained in this article is provided for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Before making any investment decision, it is recommended to consult a qualified financial advisor and carefully study the characteristics of financial products, including fees, risks, and specific conditions.
