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The SPIVA scorecard - matching active managers vs. index funds - once again shows how much the...

The SPIVA scorecard - matching active managers vs. index funds - once again shows how much the odds are stacked against going active. But one area where managers won is international small-caps (SCZ, VSS, DLS), with just 15% of them lapped by the index last year (10% over the last 3). In such an illiquid, poorly understood corner of the market, smart managers can indeed add alpha.
Comments (7)
  • Chris DeMuth Jr.
    , contributor
    Comments (4105) | Send Message
     
    Ouch. It appears to be almost impossible to durably beat the index funds as an active manager over the long term.

     

    Almost.
    25 Mar 2013, 03:39 PM Reply Like
  • hahaha48
    , contributor
    Comments (1056) | Send Message
     
    The average (of all) actively managed funds will never beat a broad base index fund. That is the result of pure mathematics and statistics.
    But some will beat the index fund and a very few can beat it by a large %. That is also pure mathematics and statistics.
    To increase your chance to beat the index fund you must choose very few stocks and hope most of them do well. The more stock you have the less likely you can beat the index fund. This is also pure mathematics and statistics.
    This is similar to beating the casino. If you place small bets and keep playing for a very long time you are almost sure to lose. But your chance to win in one bet is at least close to 50%
    25 Mar 2013, 06:41 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4105) | Send Message
     
    Yep; all true.
    25 Mar 2013, 07:36 PM Reply Like
  • Mercury Value
    , contributor
    Comments (565) | Send Message
     
    i use an active mutual for international exposure in my IRA because i feel like international trading can be such a complex area that expertise (including and especially knowledge of forex) is beneficial. very happy with my returns and my fund regularly beats its benchmarks.
    25 Mar 2013, 07:18 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4105) | Send Message
     
    Interesting; I guess that makes sense.
    25 Mar 2013, 07:36 PM Reply Like
  • ptnyc
    , contributor
    Comments (49) | Send Message
     
    Having insider, on-the-ground info on international small caps should provide alpha, especially in Illiquid, inefficient markets. Though fees for such actively managed funds are usually high and probably erode their competitiveness longterm.
    25 Mar 2013, 11:19 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4105) | Send Message
     
    I agree and I certainly hope that on-the-ground info provides alpha, especially in illiquid, inefficient markets (although I squirm a bit at the word "insider"). High fees are indefensible, so I never try to defend them.
    25 Mar 2013, 11:43 PM Reply Like
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