Report Card for Active Managers
Morningstar recently announced the introduction of a new “Box Score” report analyzing the performance of actively managed US equity mutual fund managers. Morningstar’s analysis starts with a universe of 22,000 US equity funds and prunes the list by aggregating multiple share classes and eliminating exchange-traded funds, sector funds, bear market funds, long/short funds, and lifecycle funds. They also exclude funds deemed to have a “passive-like” investment approach, specifically citing Dimensional strategies. All funds available for purchase at the beginning of any particular time period under review are included, so the results are free of survivor bias. Morningstar compares results to their own stock indexes, which seek to capture the returns of the nine distinct Morningstar style boxes (large cap growth, mid cap value, etc.), and evaluates performance by calculating both Jensen’s alpha and a more comprehensive Fama/French alpha.
The report is similar to the SPIVA report (Standard & Poor’s Indices versus Active Funds Scorecard), which compares actively managed funds to various S&P and Barclays indices in US equity, international equity, and fixed income markets. S&P uses the CRSP Survivor-Bias-Free US Mutual Fund Database, and, like the Box Score report, is published semiannually.
Although we found the Morningstar report rather light on documentation, both reports are useful in providing a regularly updated analysis that quantifies the challenge facing investors seeking to identify winning money managers.
A few nuggets from recent reports:
