S&P's long-running SPIVA scorecards have found that, over long periods, a majority of actively managed funds trailed their benchmarks — largely because active funds carry higher costs, and the average invested dollar can't beat the market it collectively is. Active choices can still make sense for specific jobs: thinner markets, custom mandates, options overlays, bond ladders. What the evidence doesn't support is paying active prices hoping to pick tomorrow's rare winner today.
Two ways to run a fund
An index fund owns the market it tracks — every stock in the S&P 500, say, in the index's proportions — and changes holdings only when the index does. An actively managed fund employs people to do better than that: to pick the winners, dodge the losers, and time the moves. Active management is the older idea, the more intuitive one, and the one that pays for most of the industry's marketing. Which makes the evidence below genuinely surprising the first time you meet it.
What the scorecard actually shows
Since 2002, S&P Dow Jones Indices has published the SPIVA scorecard (S&P Indices Versus Active), which compares actively managed funds against their assigned benchmarks, adjusting for funds that closed or changed style along the way — an adjustment that matters, because losing funds tend to quietly disappear. The finding, repeated across regions and across two decades of reports: over long horizons, a majority of active funds have trailed their benchmark, and the majority grows as the horizon lengthens. The exact figures move year to year and category to category, which is why we cite the scorecard rather than quote a number that will be stale by the time you read this — the current edition is free at spglobal.com.
A companion S&P report on persistence asks the follow-up question: do the funds that beat the benchmark keep doing it? Historically, top-performing funds have rarely stayed on top in subsequent periods — which undercuts the most natural response to SPIVA, "fine, I'll just pick one of the good ones."
Why the arithmetic runs this way
This isn't a claim that fund managers are unskilled. It's closer to the opposite: markets are full of skilled professionals trading against each other, and collectively they are the market. Before costs, the average actively managed dollar earns roughly the market's return, because someone must hold every share. After costs — management fees, trading costs, taxes from turnover — the average active dollar earns the market's return minus those costs. Index funds accept the market return and minimize the subtraction. That framing, often called the arithmetic of active management, is why the SPIVA result recurs decade after decade rather than being a fluke of any one market cycle. Costs compound against you the same way returns compound for you — our guide to fee compounding works that arithmetic in dollars.
The honest case for active — where it can make sense
A fair guide states the other side properly. Situations where active management is a reasonable choice, not a mistake:
- Less-covered corners of the market. The case for indexing is strongest where information is most thoroughly priced — large U.S. stocks. In thinner markets — some smaller international markets, parts of the bond market, municipal bonds — the gap between good and average management can be more meaningful, and some SPIVA categories have been less lopsided in some periods.
- Mandates an index can't express. Excluding specific industries on principle, managing a concentrated inherited position, harvesting losses security-by-security, or running an options overlay for income are active decisions by definition — no off-the-shelf index does them for you.
- Bonds bought for a purpose, not a benchmark. A ladder of individual bonds built to fund known future spending is active in form but isn't trying to beat anything.
- When the alternative is not investing at all. An imperfect fund someone actually holds through a bad year beats a perfect one they abandon. Behavior, not fund selection, decides most real-world outcomes.
What the evidence does not support is paying active-management prices for a fund that hugs its benchmark — "closet indexing" — or expecting anyone to reliably identify, in advance, the minority of funds that will outperform after costs.
Side by side
| Index fund | Actively managed fund | |
|---|---|---|
| Goal | Match a benchmark, minus small costs | Beat a benchmark, after larger costs |
| Ongoing costs | Typically low — little research or trading to pay for | Typically higher — management, research, trading |
| Turnover & tax drag | Usually low | Varies; higher turnover can mean more taxable distributions |
| Long-run evidence | Earns the benchmark by construction | Majority have trailed benchmarks over long periods (SPIVA) |
| Chance of beating the market | None — by design | Real, but historically the minority, and hard to pick in advance |
| Where it's strongest | Broad, heavily traded markets | Narrow or less efficient markets; custom mandates |
Where we land
Aduna Capital builds most client portfolios on low-cost, broadly diversified funds — the evidence above is a large part of why — and adds active decisions only where they do a specific job, such as the options overlays we run in some managed accounts. What clients pay us for is not a promise to beat the market; it's an allocation built around their actual life, the discipline to hold and rebalance it, and a bilingual advisor who answers the phone. Our fee and what it buys are published on our fees page — and our investment management service explains the approach in full.
Sources
- S&P Dow Jones Indices — SPIVA Scorecards — the long-running scorecard comparing actively managed funds against their benchmarks
- Investor.gov (U.S. Securities and Exchange Commission) — the SEC's investor education site — plain-English explainers on funds, fees and risk
- SEC.gov — Office of Investor Education and Advocacy — investor bulletins, including those on ETFs, options and fee disclosure
Sources reviewed August 2026. Rules, figures and scorecards change; the linked originals are always the authority.
Common questions
If indexing wins on average, why does anyone buy active funds?
Several honest reasons: some investors want mandates an index can't deliver, some categories are less lopsided than U.S. large-caps, and outperformance genuinely happens — it's just been the minority outcome over long periods and hard to identify in advance, per S&P's SPIVA and persistence scorecards. Less honestly: active funds pay for a lot of distribution and advertising.
Doesn't a falling market favor active managers who can move to cash?
That's the intuition, and SPIVA has tested it across multiple bear markets. The scorecards have generally not found that a majority of active funds protected investors better than their benchmarks in downturns — timing the exit and the re-entry are two separate decisions, and both have to be right.
Is a portfolio of index funds the same as having no strategy?
No. Index funds are ingredients. Which markets you own, in what proportions, in which accounts, and what you do when they diverge — that's the strategy, and it's where most of the outcome variability lives. Our asset allocation primer covers exactly that layer.
Does Aduna Capital ever use active funds?
The core of most portfolios we manage is low-cost and index-based. We use active decisions where they do a job indexing can't — options overlays in some accounts, individual bonds for dated goals, tax-loss harvesting — and we explain the reason for each in plain language before it happens.
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