Is Your Fund Manager Worth the Fee?
Twice a year, the company that owns the S&P 500 publishes the fund industry's report card. Year-end 2025: 79% of large-cap active funds lost to the index — and about 90.5% over the long horizon. The winners don't repeat either: of 2021's top-quartile large-cap funds, none remained by 2025, and the professionals stayed above the median less often than a coin flip. The scorecard Wall Street skips, read from the industry's own tables.
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Twice a year, inside the same company that owns the S and P five hundred, a small research desk at S and P Dow Jones Indices publishes the fund industry's report card. It is called the SPIVA scorecard, and it has run for twenty-five years. The edition that closed out twenty twenty-five carried this line: seventy-nine percent of actively managed large-cap U.S. equity funds underperformed the S and P five hundred that year — the fourth-worst year for active managers in the scorecard's history. Stretch the horizon the way the scorecard does, and the number stops being a bad year and becomes a verdict: about nine of every ten — ninety point five percent — of large-cap active funds lost to a simple index fund you can buy for almost nothing. Our verdict, after reading the industry's own scorekeeper, is that the question in this book's title has a statistical answer. This is the scorecard, and it is the document your fund manager hopes you never open.
The defense of active management is always the same: the numbers are averages, and my manager is different. So the question this book answers is the one the industry would rather you not ask a second time: do the winners repeat?
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Section One. The Ref Works for the Other Team
Understand what makes the SPIVA scorecard unusual, because it is not a critic's document. S and P Dow Jones Indices is the company that sells the benchmarks. Its business is the index. And twice a year, year after year, it publishes a careful, methodologically transparent accounting of how actively managed mutual funds perform against those benchmarks — counting the funds that failed and died along the way, which is the part the industry's own brochures quietly erase. When a scorecard this inconvenient comes from inside the house, you do not have to take a journalist's word for anything. You read the tables.
The graveyard matters more than most savers realize. Active funds do not die in public; the weak ones are merged away into stronger siblings or quietly liquidated, which is exactly why fund-family marketing reads better than fund-family results — the brochure is written by the survivors. A scorecard that counted only the living would flatter the industry by construction. The SPIVA tables count the dead, and every percentage in this book includes them.
The twenty twenty-five line is brutal enough on its own: seventy-nine percent of large-cap active funds underperformed the index in a single year, worse than the sixty-five percent rate of twenty twenty-four and the fourth-worst year for active managers in the scorecard's twenty-five-year history. But the scorecard's real force is the long horizon, because any manager can be unlucky for a year. Over the long windows the scorecard tracks, ninety point four nine percent of large-cap active funds underperformed the S and P five hundred — leaving nine point five one percent that beat it. Read that second number the way a fund marketer never will: it is not a refuge for skill. It is the size of the haystack you must search to find the needle.
Section Two. The Winners Do Not Repeat
Now the document that answers the one objection everyone raises: my manager is different. The Persistence Scorecard takes the funds that actually won — the top performers — and asks the only question that matters for your money: are they still winning later? The year-end twenty twenty-five edition follows the large-cap funds that finished twenty twenty-one in the top quartile. Four years on, how many were still in the top quartile? None. With the exception of small-cap funds, not a single top-quartile fund in any reported domestic equity category from twenty twenty-one remained in the top quartile through twenty twenty-five.
The above-median numbers are somehow worse. Of the large-cap funds that were merely above the middle in twenty twenty-one, four point five percent remained above the middle through twenty twenty-five. If outperformance were purely random — monkeys with ticker symbols — you would expect six point two five percent to hold that spot by chance. The professionals underperformed the coin. The scorecard's own sentence for this deserves to be read exactly as written: the evidence suggests that active outperformance, when it occurs, "tends to be the result of luck rather than genuine skill." There is one bright note in the edition, and it tells the same story from the other side: twenty-nine percent of the large-cap funds that made the top quartile in twenty twenty-three held it for two more years — which the report itself frames as fleeting, because the two-year window is where luck has not yet been asked to pay its tab.
The scorecard runs the same experiment one more way, and it is the version to memorize. It takes non-overlapping five-year periods and asks: of the funds that won the first five years, how many won the second five too? If performance were completely random, half of them should repeat. In the report's own framing, "if substantially more than 50% of the winners repeated in the second interval, that might be evidence of consistent skill." The results across the equity categories fell well short of the fifty percent mark. Winners do not repeat at the rate of a coin flip. That is not a rounding error in the industry's favor; we'd argue it is the whole argument, measured in the industry's own accounting.
Section Three. The Strongest Case for Active
Now the defense at full strength, because dismissing an entire industry on two tables is too easy. First: the nine point five one percent is not zero. Skilled managers demonstrably exist, and some of them beat indices for decades — the scorecard counts funds, not careers, and a great manager inside a mediocre fund complex can vanish from the statistics while still being very good. Second: the scorecard is most brutal in the most efficient market on earth. Large-cap U.S. stocks are covered by thousands of analysts, so beating that index consistently is the hardest version of the game; the persistence data itself shows the small-cap corner behaving somewhat better — seventeen percent of top-quartile small-cap funds held their rank for two years — and less efficient markets are where a genuine edge is most plausible. Third: the comparison that matters to a saver is not fund-versus-index but what-I-would-actually-do versus what the fund does for me. An index fund charges almost nothing, but it also removes the most expensive manager most people ever hire — the one in the mirror, who buys high and sells low on schedule.
And here is why the defense still loses the argument that matters. The question was never whether skilled managers exist. It is whether you can identify yours in advance. The persistence data is the industry's own answer, and it is devastating precisely because it is measured on the winners: the funds that already proved they could do it once could not do it again at rates better than chance. One more honest note for the defense, from the same report: fixed-income managers looked somewhat better over the three-year horizon — the bond market's structure gives active managers more to work with than the S and P five hundred does. That is a real caveat, and it belongs in the book. It does not change the verdict for the large-cap stock funds where most savers actually live. You are not choosing between the index and a proven winner. You are choosing between the index and a lottery ticket that costs one percent of your money every year, compounding against you for thirty.
Section Four. The Fee Is the Only Sure Thing
Run the arithmetic the fee documents make possible. Say your active fund charges one percent a year and the index charges three-hundredths of one percent. On a hundred thousand dollars over thirty years at seven percent market growth, the one-percent fee does not cost you one percent of your balance — it costs you roughly a quarter of your ending wealth, because every dollar of fee is a dollar that stops compounding for you and starts compounding for the manager. The scorecard says that in nine of ten large-cap funds, you pay that quarter of your future for underperformance. In the language of the marketplace: the product with the highest price delivers the lowest average return, and it is the only product in the economy where that sentence is not a scandal but a business model.
Section Five. The Verdict, and What We Would Watch
So: is your fund manager worth the fee? The scorecard cannot answer for your specific manager — nine point five one percent is not zero, and someone has to be in it. What it answers is the prior: before anyone shows you a track record, the base rate says the claim is probably false, the winner's rep won by luck, and the fee is the only number in the relationship that never has a bad year. Our read is that the burden of proof has quietly moved: the manager no longer has to prove the index is beatable; the index has made the manager prove the fee is payable. Twice a year, the ref publishes the score. Most of the industry keeps failing it, and the only people who never read it are the ones paying.
What we would watch next: whether the twenty twenty-five line — seventy-nine percent, fourth-worst in twenty-five years — keeps deteriorating as indexing swallows the easy alpha, whether the small-cap corner keeps offering the one statistical refuge for the active case, and whether fees finally compress under the weight of the scorecard's own arithmetic. And when the next edition lands, read it the way the professionals do, because it takes five minutes: the single-year figure first, the long horizon second, the persistence number last. Three numbers, no fund salesperson required. The tables are free, published twice a year by the company that sells the index. The only thing the industry asks is that you never check.
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