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The yearly S&P Indices Versus Active report is an annual ritual humiliation for the asset management industry, as the “SPIVA scorecard” reveals time and time again the poor long-term average results of fund managers
But some of them are not having it. Not one bit. From a press release that landed in Alphaville’s inbox yesterday evening:
As S&P prepares to release its full-year 2025 SPIVA U.S. scorecard, and the familiar attempt is made to burnish passive management as a form of successful investing, we wanted to offer a perspective from Capital Group on what the scorecard misses about the active vs. passive debate.
It is true that most active funds underperform the S&P 500 or their benchmark, but Capital Group stands apart as a notable exception.
Capital is indeed one of the better investment groups out there. This Alphavillain spent some time out in Los Angeles a few years ago getting to know the company, and it is full of smart, sincere and incredibly hard-working investors who truly care about their craft (the word “bet” is apparently banned there). Barron’s this week named Capital the best fund family of 2025.
More quantitatively, its American Funds suite is admirably cheaper than a lot of rivals; bonuses are heavily skewed to favour long-term performance; investment teams are stable; and new fund launches are rare — all factors that tend to correlate well with good performance, according to Morningstar research.
Capital’s press release says that from inception to the end of 2025, 91 per cent of its equity and multi-asset strategies and 93 per cent of its fixed income strategies have beaten their benchmarks gross of fees, which comes to 84 per cent and 74 per cent net of fees.
But longtime Alphaville readers will know that subtle choices of benchmarks and timeframes — whether conscious or not — can make someone look a lot better or worse than they deserve.
So we thought we’d look at the net asset values of a handful of Capital Group’s biggest and longest-running equity mutual funds, and compare them to the performance of the Nasdaq-tracking QQQ ETF and the Vanguard 500 index fund over the past decade.
And lo:
AMRMX is the $113bn American Mutual Fund, AIVSX is the $178bn Investment Company of America, AMCPX is the $96bn AMCAP Fund, ANWPX is the $165bn New Perspective Fund, and AGTHX is the titanic $336bn Growth Fund of America — currently the biggest actively managed mutual fund in the world.
So that’s $888bn of assets under management that have underperformed passive funds that simply track the Nasdaq 100 and the S&P 500 index over the past 10 years.
OK yes, in some cases our choice for comparison isn’t entirely fair. We chose concrete funds rather than indices so that fees are factored in, but there are always a lot of nuances here. For example, the New Perspective Fund is benchmarked to the MSCI All Country World Index, and has almost half its money in non-US markets (though a lot of it is in tech names Meta and Microsoft in the US and TSMC and ASML internationally).
Here’s the respective performance with each fund’s own chosen benchmarks. This doesn’t always look great (especially after sales charges), but is a lot more flattering than a straight comparison to Triple-Q or “Bogle’s Folly”.
And yes, it’s also been a phenomenal decade for cheap beta in general, and US tech stocks in particular. Hardly anything beats QQQ over the past 10 years. Perhaps we’re just joining in with what Capital Group in its release terms a “familiar attempt . . . to burnish passive management as a form of successful investing”.
What about if we go back to November 2000 (the furthest back we can go with LSEG Workspace data)? After all, this will still capture a lot of the dotcom bust, when the Nasdaq did abysmally, and Capital burnished its reputation for avoiding bubbles.
Nope. QQQ still looks insane, but the S&P 500 index tracker still outperforms Capital’s American Funds.
It can be argued that the SPIVA scorecard has subtle flaws and biases. For example, it just assumes that investors can invest for free in the relevant indices, when in many cases this would, even in passive funds, entail fees that make the comparison somewhat less flattering.
And as Capital Group’s Steve Deschenes points out in the press release that piqued Alphaville’s interest:
(The) SPIVA study is an equal weighted analysis — it treats all 10,000+ investment strategies as a singular dataset and then identifies a small percent that beats the benchmark. If you dollar weight the analysis and see where the dollars are actually invested in active and passive, you get a truer picture of client outcomes.
SPIVA is weighting a mom-and-pop mutual fund that has $100M in AUM and charges a high fee the same as a fund like The Growth Fund of America with $336B in AUM, has a management fee in the lowest quartile of all active funds, and returned 20.02% in 2025 and 15.4% over the last ten years, net of fees.”
Well, yeah, sure. But the technology-tilted Growth Fund of America — all but one of its top 10 holdings are tech stocks — basically returned the same as the QQQ last year, and has underperformed it over 2, 5, 10 and 20 years. And this is a well-managed fund!
This is not about beating up on Capital Group per se. Again, in the world of active managers they are arguably among the best of the bunch. For some people, trusting human fund managers is understandably a lot easier than an index committee. Moreover, active management is genuinely socially valuable. Without it, passive investing wouldn’t work.
But active management is hard. Really really hard. The distribution of stock returns is so skewed that in the truly long run it’s almost impossible to beat the index. So for the vast majority of people, the cheapest and broadest possible passive fund really is the best choice.
Further reading:
— Financial Groundhog Day came late this year (FTAV)
— Time is a flat circle — active vs passive edition (FTAV)
— Once more unto the ‘active comeback’ breach (FTAV)
— Back into the active/passive trenches (FTAV)
— Yeah, about that active comeback . . . (FTAV)
— The active comeback!* (FTAV)
— Super passive goes ballistic; active is atrocious (FTAV)
Read the full article here