Episode summary
Timothy Edwards: Inside S&P DJ Indices | Rational Reminder 405
The Rational Reminder Podcast
· · Hosts: Benjamin Felix, Cameron Passmore · Guests: Tim Edwards
Summary
The discussion centers on the SPIVA scorecard, S&P Dow Jones Indices’ long-running comparison of active and passive investing. Tim Edwards explains that the report was designed to inform, not settle, the active-versus-passive debate, and that its methodology has stayed consistent enough over 25 years to allow meaningful comparisons across time and markets. A key part of that design is avoiding survivorship bias by measuring the funds that were available for sale at the start of each period, not just the ones that survived to the end.
Across markets, the central result is persistent: most active funds underperform their benchmarks, and the odds get worse over longer horizons. Tim Edwards says bond funds do somewhat better than equity funds, but not enough to flip the conclusion, and fees matter more in bonds because the return opportunities are narrower. He also says persistence in winner selection is weak, so top past performers are not reliably repeatable. Even when the analysis is expanded to multi-asset portfolios built from active funds, the outcomes remain poor; a 60/40 portfolio of randomly selected active funds underperformed 97% of the time over 10 years.
The conversation then widens to index design. Tim Edwards argues that the practical “index effect” has shrunk over time as markets have become more efficient, and he says S&P 500 IPO inclusion rules still require seasoning, liquidity, and profitability. On market concentration, he notes that the top 10 stocks have recently approached 40% of the S&P 500, but history shows that previous giants can fade without derailing the broader index.
Key takeaways
- Tim Edwards says SPIVA’s core finding is that most active funds underperform benchmarks, and the underperformance rate rises with longer holding periods.
- He says survivorship bias matters because many underperforming funds disappear, so looking only at surviving funds overstates active performance.
- He says bond funds are somewhat better than equity funds, but fees still flip many gross-of-fee advantages into net underperformance.
- He says past winners show almost no persistence, so trailing performance is a weak signal for selecting future outperformers.
- He says randomly built active multi-asset portfolios underperformed their benchmarks 97% of the time over 10 years in the 60/40 case.
- He says the S&P 500 still requires IPOs to season for 12 months, and concentration in the top stocks has risen to near 40% without implying the index is broken.
Notable quotes
“SPIVA is an acronym. Uh it stands for S&P index versus active”
“most of the time in most markets, most actively managed funds underperform benchmarks”
“we look at not that not the funds that are available today but the funds that were available for sale whether it's 1 year ago, 5 years ago, 20 years ago and so on”
“there is almost no evidence of persistence in performance. a winning fund is just as likely to become a losing fund uh as as vice versa”
“over 10 years um randomly selected active fund portfolios um that that ran the 60/40 allocation underperform with a rate of 97% over 10 years”
How the episode opens
This is the Rational Reminder podcast, a weekly reality check on sensible investing and financial decision-making from two Canadians. We're hosted by me, Benjamin Felix, chief investment officer, and Cameron Passmore, chief executive officer at PWL Capital. Welcome to episode 405.
Incredible number, 405. And today's episode, Ben, is all about the Spiva Report. And so many listeners know exactly what we're talking about we when we say the Spiva report, but this report has been it's kind of the iconic report that's been kicking around the industry for so long, especially for people interested in the benefits of of indexing.
And I can tell you this is a report that I think back to because report's what 25 years old now. The SPA report was such an influential part of our thinking way back when we really embraced the benefits of indexing. So today we got a chance to talk with Tim Edwards who's the managing director of index investment strategy at S&P Dow Jones Indices about the SPIVA which is standard andor's indexing versus active scorecard.
really cool conversation about something that's been, you know, part of the discussion literally for 25 years. I would add though that we talked the first segment of the episode is about the SPA report, but then we get into some pretty interesting topics about whether indices and therefore index funds time the market. We basically ask about Marco Salmon's research.
Uh had had a neat discussion there. Uh we talked about the potential large private company IPOs and how that will affect indices and index funds. Some other really interesting uh discussion points there.
We also talked about market concentration, current levels of market concentration in the context of a broader historical perspective and just how that has played out in the past.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- active vs passive
- spiva scorecard
- survivorship bias
- index rebalancing costs
- market concentration
Companies and tickers mentioned
- S&P Dow Jones Indices
Watch the episode
Watch “Timothy Edwards: Inside S&P DJ Indices | Rational Reminder 405” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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The Rational Reminder Podcast, this episode and its artwork belong to Benjamin Felix, Cameron Passmore, and Dan Bortolotti. Octagon is not affiliated with the show; this page is an independent summary.
