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SPIVA® Through a Risk-Adjusted Lens How do active managers stack up to passive on a risk-adjusted basis?
BY Aye Soe


Risk and return are two sides of the same coin. Beyond relative performance of funds, market participants are also interested in the risks taken to achieve those returns. This motivated us to examine the performance of actively managed funds on a risk-adjusted basis.

The Risk-Adjusted SPIVA Scorecard measures the performance of actively managed funds against their benchmarks on a risk-adjusted basis, using net-of-fees and gross-of-fees returns. We use return/volatility ratios to evaluate performance. Volatility is computed by taking the standard deviation of monthly returns. Our goal is to establish whether actively managed funds are better at risk management than passive indices, using net-of-fees and gross-of-fees returns.

After adjusting for risk, the majority of actively managed domestic funds in all categories underperformed their benchmarks, on a net-of-fees basis, over mid- and long-term investment horizons.

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