[New series] LOOKING UNDER THE HOOD #2 🔧 👀 🔥

18 December 2020

⚖️ Is it fair to compare active fund vs benchmark performances when looking at active vs passive performance comparison ❓❓

In SPIVA report which is considered the reference today on the active vs passive performance comparison where active funds are compared with benchmarks. However, this raises a few questions:

1️⃣ Did you know that some ETFs can outperform their benchmark?  This may be the case in the Eurozone when looking at the EURO STOXX 50 or in the US when looking at European ETFs on the S&P 500.

 👉Therefore, comparing active fund performances vs benchmark will give an inaccurate vision of active-passive performance comparison.

2️⃣ Did you know that S&P compares active fund performances with an S&P benchmark while in Europe most of the active funds do not officially follow the benchmark to which they are compared in the SPIVA study? For example, all European equity active managers are compared with the S&P350.

👉 Won’t a fair comparison between active and passive funds require comparing active funds with the benchmark they officially follow?

 ✅ Highlighting this information to investors is key for portfolio construction as it can lead to wrong active-passive allocation decisions.

Marlene Hassine Konqui