WEBVTT - The Active vs Passive Scorecard 0:00:05.840 --> 0:00:07.720 Welcome to trillions. I'm Joel Webber and I'm Eric bel 0:00:07.800 --> 0:00:13.120 Tunis back in the booth. It sounds for real, way 0:00:13.200 --> 0:00:15.720 better than my closet. It's the reads, it's it's great. 0:00:15.720 --> 0:00:18.200 I love it. It's elevated. Yeah, it's good to see you. 0:00:18.200 --> 0:00:20.560 You too. You brought us somebody today who we're gonna 0:00:20.560 --> 0:00:23.560 hear from. Yeah, I grabbed him off of the AM track. 0:00:23.880 --> 0:00:25.640 I was like, you look only a good guest. We're desperate, 0:00:25.640 --> 0:00:28.760 we're getting lazy these days. Um No, this is Tim Edwards, 0:00:29.000 --> 0:00:31.680 who is an et F industry veteran. His SMP now 0:00:31.840 --> 0:00:34.400 and what he's bringing to us and where we're talking 0:00:34.400 --> 0:00:37.960 to him today is the SPEVA Report. For nerds know 0:00:38.080 --> 0:00:40.199 exactly what I just said, but if you don't, it's 0:00:40.240 --> 0:00:44.000 the SMP Index versus Active Report. It's a scorecard that 0:00:44.040 --> 0:00:46.800 says how will our active managers doing versus their benchmarks. 0:00:47.280 --> 0:00:50.560 This report has been out Tim make correct fifteen years 0:00:50.880 --> 0:00:54.680 and has been pretty instrumental in sort of driving the 0:00:54.760 --> 0:00:57.440 narrative and thus the flows towards passive because the numbers 0:00:57.480 --> 0:01:00.280 are pretty bad. Okay, so we're gonna hear from Tim 0:01:00.360 --> 0:01:09.559 Edwards of SMP this timeand trillions the SPIVA Report. Tim 0:01:09.560 --> 0:01:12.800 wakan a trillions. Hi, thanks very much for having me. Okay, 0:01:12.959 --> 0:01:16.360 Tim Spiver. For those not familiar, what is this going 0:01:16.440 --> 0:01:20.319 to reveal? Well, it was in fact first published twenty 0:01:20.520 --> 0:01:24.240 years ago that Chack the good Time Flies. The concept 0:01:24.319 --> 0:01:28.319 is is really really simple. Um. The idea is to 0:01:28.360 --> 0:01:33.280 take a database of actively managed funds, assign each fund 0:01:33.440 --> 0:01:36.160 correctly to a representative benchmark, so if it's a large 0:01:36.160 --> 0:01:40.399 cap us equity fund, the sp and then on a 0:01:40.440 --> 0:01:44.319 regular basis to report how many of those funds survived, 0:01:44.560 --> 0:01:46.880 survived and beat the benchmark. And then there's a wealth 0:01:46.920 --> 0:01:51.880 of additional data around the spread in performance average performance 0:01:52.160 --> 0:01:55.920 across funds, both over the short term and over the 0:01:55.920 --> 0:01:57.720 long term. So it's a report that gives you a 0:01:57.760 --> 0:02:02.919 sense of where active management is doing really well different geographies, 0:02:02.960 --> 0:02:07.560 different market segments. What the long term statistics tell us 0:02:07.600 --> 0:02:11.200 about where indexing might work as an investment strategy. Okay, 0:02:11.240 --> 0:02:14.960 so who's winning? Who's writing? Um? Well, we just today 0:02:15.480 --> 0:02:20.600 published our latest edition of the spever U score cord Um. 0:02:20.639 --> 0:02:24.399 It runs data up to the media point of two 0:02:25.080 --> 0:02:29.959 and unusually perhaps um, it's really really close year to 0:02:30.080 --> 0:02:35.680 date in two of actively managed US large cap funds 0:02:35.760 --> 0:02:38.600 underperformed the SMP five dred So it's not it's not 0:02:38.639 --> 0:02:43.200 exactly fifty fifty's before, but essentially it's it's a coin flip. 0:02:43.280 --> 0:02:46.080 So in the short term I'd say that it's a 0:02:46.160 --> 0:02:50.520 really close race for two. Over the long term, a 0:02:50.639 --> 0:02:54.560 much higher proportion of actively managed funds have underperformed the 0:02:54.680 --> 0:02:58.400 s Yeah, I mean fifty percent is a huge feed 0:02:58.440 --> 0:03:01.959 for active there. When I think of active, especially in 0:03:02.000 --> 0:03:04.960 the large cap space, I think of like a third 0:03:05.360 --> 0:03:09.119 outperforming right this year half have So that's pretty good, 0:03:09.200 --> 0:03:11.280 is it? Because of the violatility, I think, I think 0:03:11.320 --> 0:03:17.920 there's a combination of factors. Um. So, there is traditionally 0:03:19.080 --> 0:03:22.280 a conception that active managers tend to do better in 0:03:22.520 --> 0:03:26.280 bear markets, and of course that's something that happened this year, 0:03:26.320 --> 0:03:28.200 and in the first half of the year, the US 0:03:28.240 --> 0:03:31.560 exty market turned from from boll to bear. Um the 0:03:31.720 --> 0:03:36.520 data suggests a much more nuanced picture. Actually, a downturn 0:03:36.720 --> 0:03:39.360 tends to make things a lot more noisy and a 0:03:39.400 --> 0:03:42.080 bit more random. What we also saw this year, as 0:03:42.080 --> 0:03:46.400 well as slightly higher volatility, was a massive increase in dispersion, 0:03:46.440 --> 0:03:49.000 which is a measure of how differently stocks are performing. 0:03:49.560 --> 0:03:53.080 This was most visible in the performance of of different sectors. 0:03:53.240 --> 0:03:55.880 So energy doing fantastically well at the same time this 0:03:55.960 --> 0:03:59.160 technology was doing rather badly. And what you had across 0:03:59.200 --> 0:04:02.640 different styles, across different sectors, across different stocks was a 0:04:02.760 --> 0:04:06.280 really big difference between if you like winners and losers. 0:04:06.920 --> 0:04:09.920 What what that does? It doesn't make any sort of 0:04:09.960 --> 0:04:14.480 strategy smarter, but it does really turn it into more 0:04:14.600 --> 0:04:17.839 of a game of luck rather than skill. Um. The 0:04:17.920 --> 0:04:20.040 last time we saw a dispersion as high as we've 0:04:20.080 --> 0:04:22.960 seen it so far in twenty two was two thousand 0:04:22.960 --> 0:04:26.400 and nine. Funnily enough, that's the last time that active 0:04:26.440 --> 0:04:29.280 managers had such a good record. Yeah, I mean, um, 0:04:29.320 --> 0:04:31.800 I remember going back in two thousand and eight and 0:04:31.839 --> 0:04:34.560 looking at the twenty biggest active funds, and I found 0:04:34.880 --> 0:04:38.240 two thirds of them underperformed the horrendous year. Like the 0:04:38.279 --> 0:04:42.520 SMP was down, two thirds were down worse. And this 0:04:42.600 --> 0:04:44.920 was part of our big theme that we've been saying 0:04:45.000 --> 0:04:46.880 for I don't know a decade. At this point we're 0:04:46.920 --> 0:04:50.000 pretty proven, right, is that a bear market is actually 0:04:50.040 --> 0:04:52.880 not going to help active um. It's it made help 0:04:52.920 --> 0:04:55.159 a couple of funds, but generally speaking, the same amount 0:04:55.120 --> 0:04:59.320 will outperform and the same amount will underperform um And 0:04:59.440 --> 0:05:01.840 the other thing I think just a bear market tends 0:05:01.880 --> 0:05:04.880 to be when investors flee their funds and their assets 0:05:04.880 --> 0:05:08.080 go down anyway, So it's just generally not they sort of. 0:05:08.640 --> 0:05:11.599 I don't know the turnaround opportunity that I think people 0:05:11.640 --> 0:05:13.799 think it is, although if they can keep up fifty 0:05:14.640 --> 0:05:16.520 for the year or a couple of years, that I 0:05:16.560 --> 0:05:19.960 guess they would go a little further with maybe changing 0:05:20.000 --> 0:05:22.440 the narrative. Yeah, I think if if if they can 0:05:22.600 --> 0:05:24.800 maintain that that rate over the long term, then it 0:05:24.839 --> 0:05:26.960 does get to be more of a balanced picture. I mean, 0:05:27.760 --> 0:05:30.560 you know, something to bear in mind is we don't 0:05:30.720 --> 0:05:34.240 apply any due diligence, if you like, on when producing 0:05:34.240 --> 0:05:37.800 our speed reports. We don't say how did the good funds? Do? 0:05:37.839 --> 0:05:40.080 You know? How do the funds that I would judge 0:05:40.080 --> 0:05:43.400 as being likely to outperform do? Instead? It's it's really 0:05:43.440 --> 0:05:47.880 about measuring the universe. So you might think, as an investor, oh, well, 0:05:47.920 --> 0:05:49.880 you know, overall half of the funds out performed, but 0:05:49.920 --> 0:05:52.720 I might be able to identify it half. That's the problem. 0:05:52.760 --> 0:05:54.880 This is the problem for active and why I don't 0:05:54.880 --> 0:05:57.960 even know if it matters. Okay, fifty out perform, let's 0:05:58.000 --> 0:06:00.600 just say they actually held that up for five years. 0:06:00.600 --> 0:06:03.440 They won't, but let's just say they did. Most people, 0:06:03.480 --> 0:06:08.120 I think, especially advisors, have just sort of resigned themselves 0:06:08.120 --> 0:06:11.080 to going well. I I admit some will outperform, but 0:06:11.120 --> 0:06:12.919 I don't know which one is ahead of time, and 0:06:12.960 --> 0:06:14.440 I don't want to roll the dice on that. I'll 0:06:14.480 --> 0:06:17.000 just go Vanguard and buy a three basis point beta fund. 0:06:17.360 --> 0:06:19.840 And that's what the flow show. So I mean, can 0:06:19.920 --> 0:06:22.360 active turn around at all? Is there? I mean? Is 0:06:22.400 --> 0:06:26.279 it over? Um? Well, let me say two things about 0:06:26.279 --> 0:06:30.440 that would say not. First of all, that's well no, 0:06:30.560 --> 0:06:33.040 it's the persistence problem too, and they if they do 0:06:33.080 --> 0:06:35.159 it one year, they usually or five year period, they 0:06:35.200 --> 0:06:36.919 usually do not do it the next five year period. 0:06:37.320 --> 0:06:39.880 And and advisors know this. This information is now out 0:06:39.880 --> 0:06:41.800 there thanks to Spiva and the Internet and whatnot. And 0:06:41.920 --> 0:06:44.400 obviously Vanguard and Bogel beat the drum on this for 0:06:44.440 --> 0:06:48.400 many years. Um. I mean I'm not I'm I'm torn 0:06:48.400 --> 0:06:51.600 on how these tim tim is the game over? Well, 0:06:51.880 --> 0:06:55.320 first of all, let's just put some data around this conversation. 0:06:55.360 --> 0:06:59.480 So we mentioned under performing year to day in two, 0:07:00.000 --> 0:07:02.520 but the Spever reports to include longer term statistics. If 0:07:02.520 --> 0:07:04.640 you look at three years, that number goes up to 0:07:05.760 --> 0:07:07.880 under performing, If you go to ten years, that number 0:07:07.920 --> 0:07:11.720 goes up to under performing, and if you go out 0:07:11.760 --> 0:07:14.640 to twenty years since we've started producing these reports, it 0:07:14.760 --> 0:07:20.400 is actively managed under performing UM so. So so that's 0:07:20.440 --> 0:07:22.560 the challenge I think that Eric's getting at right that 0:07:22.640 --> 0:07:24.200 the short term number is it's always be the long 0:07:24.280 --> 0:07:29.280 term number UM. Then you have the issue with as 0:07:29.280 --> 0:07:33.239 you say, persistence so UM. There are lots of different 0:07:33.240 --> 0:07:35.560 ways that you could try and identify a manager who's 0:07:35.800 --> 0:07:38.800 UM your well positioned to to beat the market. One 0:07:38.800 --> 0:07:42.040 of the challenges is the data suggests that the most 0:07:42.040 --> 0:07:45.040 obvious thing to look at, did this manager beat the market? 0:07:45.120 --> 0:07:48.920 Historically UM tends to be a low information signal, So 0:07:48.960 --> 0:07:51.600 that's something that we cover in our Persistence report, which 0:07:51.640 --> 0:07:55.480 is a separate Spever report comes out similarly on a 0:07:55.520 --> 0:07:57.800 semi annual schedule, and what we look at is did 0:07:57.840 --> 0:07:59.760 the funds that used to beat the market or used 0:07:59.760 --> 0:08:03.480 to be their pays continue to do so? And there 0:08:03.600 --> 0:08:06.080 you find actually there's a there's a degree of reversion 0:08:06.120 --> 0:08:07.760 to the mean. It's really interesting to think about the 0:08:07.760 --> 0:08:11.280 mechanics as to what happens to successful managers. That means 0:08:11.360 --> 0:08:13.239 that you know, they might be challenged in their future 0:08:13.240 --> 0:08:16.800 out performance. What the data says is that it is 0:08:16.840 --> 0:08:20.280 difficult to identify a fund that will win based on 0:08:20.360 --> 0:08:29.480 those that have outperformed in the past. Morning Star has 0:08:29.480 --> 0:08:32.559 this great report, uh like yours, but they put fee 0:08:32.559 --> 0:08:34.559 buckets into it, and what they find is there's a 0:08:34.640 --> 0:08:38.280 high correlation between the ones that do outperform um and 0:08:38.320 --> 0:08:41.480 the and the ones that are cheapest. So the lowest 0:08:41.600 --> 0:08:46.400 quartile fee has a much better our performance rate than 0:08:46.600 --> 0:08:49.920 the highest quartile fee, which is almost like they all underperform. 0:08:50.040 --> 0:08:52.080 Is that kind of a common thread with the let's 0:08:52.080 --> 0:08:54.000 look at the tenure the ten percent or nine percent 0:08:54.040 --> 0:08:56.520 that outperformed. Is low fee a common thread or is 0:08:56.520 --> 0:09:00.320 there something else they haven't in common? So we um 0:09:00.920 --> 0:09:02.880 I've seen in the morning Star report and I like it, 0:09:02.880 --> 0:09:05.480 and it probably is. Now I should emphasize what we 0:09:05.559 --> 0:09:09.040 do with SPEVER is to compare actively manage funds net 0:09:09.040 --> 0:09:12.520 of fees to benchmarks, which by convention do not include 0:09:12.559 --> 0:09:14.199 any trading costs. Right, So we're giving them a hard 0:09:14.200 --> 0:09:17.760 benchmark to be um. Over the years, we've heard this, 0:09:17.840 --> 0:09:19.880 you know, is it all about fees and so on, 0:09:19.920 --> 0:09:22.599 And so we started producing a different report which was 0:09:22.640 --> 0:09:27.200 published exactly a week ago, which looks at grosser fee 0:09:27.200 --> 0:09:30.679 performance and also looks at the performance of institutional accounts. 0:09:30.720 --> 0:09:33.400 That's called spever institutional. And what that does is is 0:09:33.440 --> 0:09:36.360 answers first of all, the question of how much difference 0:09:36.400 --> 0:09:40.120 do fees make UM and what difference would it make 0:09:40.160 --> 0:09:44.280 if I had institutional resources devoted to selecting an outperforming 0:09:44.280 --> 0:09:47.440 active manager, and to take a just abroad look at 0:09:47.440 --> 0:09:49.520 the results, what you see is, first of all, fees 0:09:49.800 --> 0:09:54.520 do matter. Second of all, actually the performance of those 0:09:55.200 --> 0:09:59.080 institutionally managed accounts is slightly better than the performance of 0:09:59.280 --> 0:10:05.840 mutual funds. However, most active funds underperform the benchmark, so 0:10:06.280 --> 0:10:10.479 even even gross of film. You know why you know, 0:10:10.320 --> 0:10:12.920 I again my study of Bogel and this book. I 0:10:13.000 --> 0:10:16.600 he would describe the active managers as sitting in a circle, 0:10:17.440 --> 0:10:19.400 and they're all trading with each other, like at a 0:10:19.440 --> 0:10:21.839 poker table. And I think sometimes people think of the 0:10:21.880 --> 0:10:24.520 stock market as something else, but it's really just a 0:10:24.520 --> 0:10:26.640 bunch of people trading with each other. And for for 0:10:26.679 --> 0:10:28.960 me to win, Joel has to lose, and then I 0:10:28.960 --> 0:10:31.400 have to basically find losers, like four or five times 0:10:31.440 --> 0:10:34.040 in a row to be that that person who have performs, 0:10:34.080 --> 0:10:36.520 and the odds are tough. It's just very difficult to 0:10:36.559 --> 0:10:39.000 sort of gamble your way into having more money than 0:10:39.040 --> 0:10:41.360 everybody else. I guess a couple do it, but largely 0:10:41.760 --> 0:10:45.720 that everybody's sort of netting out zero plus you added 0:10:45.760 --> 0:10:48.240 the fees and then it's overall people. It's not quite 0:10:48.240 --> 0:10:51.440 a zero some game. I think it's it's um. So 0:10:51.559 --> 0:10:54.200 here's here's the thing. We could all invest in the 0:10:54.200 --> 0:10:56.480 equity markets and we could all make money. It's not 0:10:56.640 --> 0:11:00.000 zero sum. What really is zero sum is is outperformance 0:11:00.160 --> 0:11:03.880 is being smarter than than than everyone else or than 0:11:04.040 --> 0:11:07.240 well exactly. The capital markets will build money, right, if 0:11:07.280 --> 0:11:09.040 you just put your money in there, it will grow. 0:11:09.120 --> 0:11:12.520 It's more of the outperformance zero some the trading. But 0:11:12.559 --> 0:11:15.120 I mean, here's one question I have in the in 0:11:15.160 --> 0:11:17.120 the equity and we'll go to some other categories. I mean, 0:11:17.120 --> 0:11:19.360 all the numbers are pretty bad here, but you know, 0:11:19.640 --> 0:11:22.719 it seems to me that some of these funds were 0:11:22.800 --> 0:11:25.000 like built in the seventies, eighties, and nineties, and they 0:11:25.000 --> 0:11:27.800 have to be real close to the SMP, and it's 0:11:27.840 --> 0:11:30.000 tough to beat the SMP when you're close to it, 0:11:30.160 --> 0:11:33.439 whereas some funds now like an ARC, they go way 0:11:33.480 --> 0:11:35.560 out there and they're either gonna like crush it or 0:11:35.600 --> 0:11:38.080 get crushed, and seems to be investors sort of prefer 0:11:38.240 --> 0:11:41.120 that because in the core they're moving to passive. Before 0:11:41.120 --> 0:11:42.840 you answer that, though, I think it's important that we 0:11:42.880 --> 0:11:45.640 talked about this universe of funds in general, right because 0:11:45.840 --> 0:11:48.480 this is everything. It's e T s, mutual funds, everything 0:11:48.679 --> 0:11:51.959 grouped up and evaluated as one. Yes, so ets are 0:11:51.960 --> 0:11:54.079 included on a report, but it's it's basically and did 0:11:54.080 --> 0:11:55.680 you break them out at all? Or is it all? 0:11:55.840 --> 0:11:58.240 We didn't, although that that is something I've been thinking 0:11:58.280 --> 0:12:00.719 about doing, and it is also something I mean, I 0:12:00.720 --> 0:12:03.320 don't think we'll ever do a daily spever, but you 0:12:03.360 --> 0:12:05.360 could with the actually can see you know how many 0:12:05.360 --> 0:12:08.640 how many beat the market today? Anyway to the question, yes, 0:12:08.720 --> 0:12:10.960 so there aren't different categories. We've been talking a lot 0:12:10.960 --> 0:12:14.560 about the large cap category. The growth category is actually 0:12:14.679 --> 0:12:17.640 quite interesting. So growth was one of those areas where 0:12:17.640 --> 0:12:20.600 the record of active managers had been going pretty strong. 0:12:21.400 --> 0:12:23.760 If we were here one year ago, you've been asking 0:12:23.760 --> 0:12:25.720 me why is it that I think it was a 0:12:25.800 --> 0:12:28.840 thirty percent of growth managers were out performing over three 0:12:28.920 --> 0:12:33.600 years UM. That record has strongly reverted to the mean 0:12:33.640 --> 0:12:38.240 with the downturn in growth. There's you mentioned Cathy Woods 0:12:38.320 --> 0:12:40.520 Arc Fund, which which came in for a lot of 0:12:40.600 --> 0:12:44.120 perhaps unfair criticism. She was not alone. If you look 0:12:44.200 --> 0:12:48.000 over the three year period now at large cap growth, 0:12:48.120 --> 0:12:50.360 it's it's come back completely other the other way, it's 0:12:51.480 --> 0:12:54.520 under performing. And what you see is is that, yes, 0:12:54.679 --> 0:12:59.000 there is this aspect to which investors more generally I think, 0:12:59.000 --> 0:13:02.040 have come to their active managers and demanded They said, look, 0:13:02.040 --> 0:13:06.119 I can get very low cost access to my benchmark. 0:13:06.600 --> 0:13:08.120 What I need you to do is to focus on 0:13:08.160 --> 0:13:12.000 your best ideas and to concentrate on your highest conviction picks. 0:13:12.040 --> 0:13:14.600 And I think many men managers have done that. It 0:13:14.720 --> 0:13:17.320 does make it then the end result a little more 0:13:18.000 --> 0:13:19.960 more of a broad distribution. Right there are either gonna 0:13:19.960 --> 0:13:22.640 win big or they're gonna lose big um. And it 0:13:22.679 --> 0:13:25.640 does in some categories like like growth, I mean that 0:13:25.679 --> 0:13:28.000 you can get quite strong extremes. I think there's evidence 0:13:28.520 --> 0:13:32.520 in our data suggest that the growth segment was kind 0:13:32.520 --> 0:13:35.719 of more growth than than our growth index in particularly 0:13:36.280 --> 0:13:41.640 in the downturn in growth relatively that started back in September. Yeah, 0:13:41.679 --> 0:13:43.760 I think the I think I'm getting at here is 0:13:43.800 --> 0:13:46.600 if you were running a fund in the eighties and nineties, 0:13:46.600 --> 0:13:49.199 before indexing was big, you were used in the course, 0:13:49.360 --> 0:13:51.679 you were ben smart hugging largely because you couldn't get 0:13:51.720 --> 0:13:53.400 too crazy you can go you couldn't go for Cathy 0:13:53.440 --> 0:13:56.760 would because you're sort of delivering core exposure. And I 0:13:56.760 --> 0:13:58.400 think that locks them in because there are a lot 0:13:58.440 --> 0:14:00.600 of their existing clients are those people who alathem for that. 0:14:01.160 --> 0:14:03.520 So I find that they're kind of in this sort 0:14:03.559 --> 0:14:08.560 of unfortunate like conundrum about still serving core exposure, so 0:14:08.559 --> 0:14:11.400 they can't go really active. But people weren't really active 0:14:11.440 --> 0:14:14.599 now because they use indexing for their core. Yeah, I 0:14:14.640 --> 0:14:16.720 think I think you might be right. I would say 0:14:16.960 --> 0:14:19.440 I'm not an expert in anten eighties fund history, but 0:14:19.440 --> 0:14:22.760 there were concentrated technology funds at the time. There were 0:14:22.840 --> 0:14:26.080 you know, top twenty funds, just twenty great idea funds 0:14:26.400 --> 0:14:30.720 at the time. Um, I think you're right that more broadly, 0:14:31.240 --> 0:14:34.800 it used to be the case that managers could could 0:14:34.880 --> 0:14:37.640 essentially sell beta as alpha, that that might be a 0:14:37.640 --> 0:14:40.680 bit a bit unfair, but I think that's a lot 0:14:40.720 --> 0:14:44.360 harder to do nowadays. I still think there's look, there's 0:14:44.400 --> 0:14:49.080 there's still massive need for active managers in our markets, 0:14:49.520 --> 0:14:52.720 and they do provide a valuable service in terms of 0:14:53.240 --> 0:14:58.560 you know, price efficiency an allocation of capital. The challenge 0:14:58.880 --> 0:15:00.800 I think is is your much do you need and 0:15:00.840 --> 0:15:04.600 how much do you as as an individual investor need 0:15:04.680 --> 0:15:07.880 to to allocate to a to an active manager when 0:15:08.000 --> 0:15:09.920 actually a lot of what's driving and performance to be 0:15:09.960 --> 0:15:13.120 yours allocation. So walk us through some other headlines here 0:15:13.240 --> 0:15:17.760 we had an equities there, fixed income. Yeah, so, um so, 0:15:17.800 --> 0:15:20.640 I'll pick to too. Highlights from from other categories. The 0:15:20.680 --> 0:15:26.000 first is um so, international managers had a slightly better 0:15:26.400 --> 0:15:30.320 record in the latest Speeded edition and although again it's 0:15:30.400 --> 0:15:34.840 it's we're still not seeing categories generally where you get 0:15:34.840 --> 0:15:37.600 a high proportion of active managers beating the index over 0:15:37.640 --> 0:15:41.880 the long term. One area that we have commented upon 0:15:41.960 --> 0:15:44.800 frequently as one where the active record is much better 0:15:45.280 --> 0:15:50.760 international small caps. So compared to an international small cap benchmarks, 0:15:50.920 --> 0:15:55.800 managers picking small international stocks have actually had a pretty 0:15:55.880 --> 0:16:00.560 good record over the long term. Fixed income well fixed 0:16:00.560 --> 0:16:02.560 income has been was it was a bit more of 0:16:02.560 --> 0:16:05.440 a mix this year. One area where active funds seem 0:16:05.480 --> 0:16:08.560 to be having a particularly tough time was in the 0:16:09.320 --> 0:16:12.600 intermediate US US government, and I guess that's it's just 0:16:12.640 --> 0:16:14.600 a downturn in US government and also one of the 0:16:14.600 --> 0:16:18.440 typical strategies that managers use in fixed income going along 0:16:18.480 --> 0:16:22.440 the duration was a painful one this year. One area 0:16:22.480 --> 0:16:27.040 where we saw managers do actually pretty well was just 0:16:27.160 --> 0:16:31.160 general investment grade funds UM, seeing an under performance rate 0:16:31.240 --> 0:16:35.120 of seventeen percent there um. So there does appear to be, 0:16:35.280 --> 0:16:39.720 at least in the short term, evidence for for strong 0:16:39.720 --> 0:16:42.040 performance from active managers in the fixed income space. So 0:16:42.200 --> 0:16:44.040 the fixed income has always been a little better than 0:16:44.040 --> 0:16:47.600 equity in these Beaver reports, and some say, well, look, 0:16:47.760 --> 0:16:50.680 if your benchmark is the AGG it doesn't hold high 0:16:50.720 --> 0:16:52.640 yield international. A lot of these managers will buy high 0:16:52.680 --> 0:16:55.440 yield international, jag up the credit risk. Um do you 0:16:55.480 --> 0:16:58.280 account for that, because in the equity world, if you 0:16:58.360 --> 0:17:00.000 do that, you sort of get put into a different 0:17:00.040 --> 0:17:02.440 bucket that's called style drift. How do you account for that? 0:17:02.480 --> 0:17:05.840 Because I do think sometimes fixed income. The bond managers. Actually, 0:17:05.880 --> 0:17:08.000 I think I have it lucky. They've got this agg 0:17:08.040 --> 0:17:11.400 benchmark which is waited by debt. It's whereas the smps 0:17:11.400 --> 0:17:13.560 got like momentum baked into it. It's a harder index 0:17:13.600 --> 0:17:15.240 to beat on the bond side. I just feel like 0:17:15.240 --> 0:17:18.560 maybe the index is easier to beat in general. Yeah, 0:17:18.600 --> 0:17:21.119 I mean, my my team took over the production of 0:17:21.160 --> 0:17:24.080 these reports quite recently and I did a deep dive 0:17:24.160 --> 0:17:25.920 into the fixed income segment. And let me, let me 0:17:25.960 --> 0:17:30.760 tell you something. Fixed income benchmarking is hard. It's really hard. Um. 0:17:32.080 --> 0:17:36.800 Telling how a fund in particular is generating its returns 0:17:38.040 --> 0:17:41.159 is difficult. Because I can take an equity fund, I 0:17:41.200 --> 0:17:43.040 could tell you you've show me its performance. I can 0:17:43.040 --> 0:17:44.840 tell you whether it's investing in emerging markets or not 0:17:44.920 --> 0:17:47.320 simply by you know how it's doing and how emerging 0:17:47.359 --> 0:17:50.359 markets are doing. Whereas in fixed income, if you're taking 0:17:50.560 --> 0:17:52.840 a little bit of extra credit risk, if you're taking 0:17:52.880 --> 0:17:55.800 on a little bit more duration, if you're using tips, 0:17:56.280 --> 0:17:58.879 what you'll see is in the short term you'll return 0:17:58.960 --> 0:18:01.000 to be really really correlated is your benchmark. Over the 0:18:01.080 --> 0:18:03.760 long term, there will be a drift. And this makes 0:18:04.119 --> 0:18:07.600 benchmarking really really difficult. I think there is a good 0:18:07.600 --> 0:18:10.640 point to be made there in terms of aggregate bond 0:18:10.680 --> 0:18:18.240 indices not representing what is the typical active manager activity. 0:18:19.359 --> 0:18:22.199 I do think there's an open question there, and I 0:18:22.200 --> 0:18:27.960 would certainly say that it's it's it's still a challenge. However, 0:18:28.240 --> 0:18:31.000 I still think the way we do speaver is the 0:18:31.080 --> 0:18:33.600 right way to do it, in the sense that we 0:18:33.640 --> 0:18:37.280 should be comparing what an active manager can do versus 0:18:37.359 --> 0:18:40.439 what is the simple choice in terms of gating broad 0:18:40.560 --> 0:18:46.320 market exposure. Yeah, there's an index called the Bloomberg Universal Index, 0:18:46.480 --> 0:18:48.160 which is like the AGG, but it has a little 0:18:48.200 --> 0:18:52.359 high yield international. When we put that against intermediate total 0:18:52.400 --> 0:18:56.199 return managers, the beat rate guts cut in half. They 0:18:56.240 --> 0:19:00.560 become more like active stock pickers UM. But that that 0:19:00.760 --> 0:19:04.119 ticker for that universal is actually ETF growing pretty quickly. 0:19:04.480 --> 0:19:06.959 So some of these it's I U s B. It's 0:19:07.000 --> 0:19:08.960 one of the fastest growing and I could see why. 0:19:08.960 --> 0:19:11.360 It's the AGG with a little extra something, and it's 0:19:11.400 --> 0:19:13.679 sort of, in my opinion, probably the best replacement for 0:19:13.680 --> 0:19:17.080 a bond manager versus say the AGG or be you 0:19:17.119 --> 0:19:19.080 know a g G R B N d UM. What 0:19:19.200 --> 0:19:21.640 one question I have is sometimes the speed reports come out, 0:19:22.520 --> 0:19:25.679 someone will be like, especially on Twitter, Hey, this is 0:19:25.680 --> 0:19:28.320 an index company. You know, of course they're going to 0:19:28.400 --> 0:19:31.000 want to promote this. And you know what would you 0:19:31.000 --> 0:19:32.760 say to somebody say, this is actually in your vested 0:19:32.840 --> 0:19:35.200 interest to have all this these numbers be so bad? 0:19:35.240 --> 0:19:37.720 I get it, it's true. But do you ever get 0:19:37.760 --> 0:19:40.440 people saying that or do you get maybe active manager 0:19:40.480 --> 0:19:44.200 hate mail? Um? So well, let me let me say, 0:19:44.200 --> 0:19:48.040 first of all, if you are an outperforming active manager. Um, 0:19:48.080 --> 0:19:50.000 if you're one of theft in the short term or 0:19:50.040 --> 0:19:51.760 one of the ten percent in the long term in 0:19:51.880 --> 0:19:54.879 U S equities, you should love the Spever report because 0:19:54.880 --> 0:19:58.919 what it shows is how special you are. So I 0:19:58.920 --> 0:20:04.360 don't get hate mail from from good active managers. Secondly, Um, 0:20:04.400 --> 0:20:07.840 what we committed to do was to report this number 0:20:07.880 --> 0:20:11.560 on a regular frequency, i e. Every six months, will 0:20:11.720 --> 0:20:14.200 report it when the numbers in our favor, will report 0:20:14.200 --> 0:20:15.840 it when the number isn't in our favor, and we'll 0:20:15.840 --> 0:20:20.200 try and give people perspectives UH and insights into what's 0:20:20.320 --> 0:20:23.720 driving those numbers. Now, you're right, the long term data 0:20:24.400 --> 0:20:28.040 does carry an implication that perhaps in an index based 0:20:28.040 --> 0:20:33.199 approach could be suitable. Um. But the important point is 0:20:33.200 --> 0:20:36.000 that we commit to reporting those numbers whatever they are, 0:20:36.040 --> 0:20:45.600 and then let the data speak for itself. I noticed 0:20:45.640 --> 0:20:48.200 you guys asset weight a section of the report and 0:20:48.200 --> 0:20:51.000 then you equal weight is were there differences in the 0:20:51.440 --> 0:20:54.480 our performance when you do those two different methods, Yes, 0:20:54.840 --> 0:20:58.560 there are. So the reason we do both. So speeder 0:20:58.680 --> 0:21:00.960 is not a kind of weighted number. How many funds 0:21:01.000 --> 0:21:03.919 were there in the universe, how many beating the market? Um? 0:21:04.040 --> 0:21:08.000 And obviously well not maybe not obviously, but but in practice, 0:21:08.040 --> 0:21:11.280 what what happens is that doesn't represent the invested assets. 0:21:11.480 --> 0:21:13.400 So there's a lot more money in some big funds 0:21:13.440 --> 0:21:15.879 than there are in many small funds. Um. So in 0:21:15.920 --> 0:21:19.320 the report we do report the equal weighted average returned 0:21:19.359 --> 0:21:22.119 from each category and the asset weighted returned from each category. 0:21:22.200 --> 0:21:24.119 If the big funds are doing better than the asset 0:21:24.119 --> 0:21:26.920 weighted performance should be better than the equal weight to performance. 0:21:27.600 --> 0:21:30.200 Generally speaking, just sort of summarizing lots and lots of 0:21:30.280 --> 0:21:32.920 data pointance and lots of years of reports, asset wasted 0:21:32.960 --> 0:21:39.040 performance is better. Generally speaking, is that because money flow helps, 0:21:39.160 --> 0:21:41.560 because you're buying the stocks that the flows are coming 0:21:41.560 --> 0:21:43.040 in and therefore the stocks to go up when you 0:21:43.040 --> 0:21:45.840 buy them, which is sort of like a nice upward spiral. NOA. 0:21:45.880 --> 0:21:48.159 Is it more just the big managers are able to 0:21:48.200 --> 0:21:50.680