Data: S&P Dow Jones Indices; Chart: Axios Visuals
Not all investors are trying to beat the market. According to S&P Dow Jones Indices, a record $5.4 trillion was parked in funds that passively track the S&P 500 at the end of 2020.
Why it matters: There’s plenty of data that shows most individual investors, and even professional money managers, can’t beat the S&P 500 by actively managing their stock portfolios.
Stay on top of the latest market trends and economic insights with Axios Markets. Subscribe for free
This is why prominent investors like Warren Buffett advise followers to stick to passively managed vehicles like S&P 500 index funds.
By the numbers: At the end of 2008 during the financial crisis, there was just $915 billion worth of assets indexed to the S&P 500. The S&P closed at 903 that year.
As passive investing has become increasingly popular, assets indexed to the S&P nearly sextupled (+493%) to $5.4 trillion in 2020 as the index itself quadrupled (+316%) to 3,756.
About 60% of large-cap equity fund managers underperformed the S&P 500 in 2020, according to a separate report from S&P Dow Jones Indices.
This was the 11th straight year that a majority of these professional stock pickers lagged that benchmark.
Yes but: The active fund management business is alive and well.
Just over $8 trillion in actively managed funds use the S&P 500 as their benchmark for performance.
State of play: Even the pros who perform well in a given year are rarely able to stay on top.
S&P Dow Jones Indices found that of active large-cap equity fund managers in the top-performing half of their peer group in 2016, just 23% remained in the top in 2017. Only 10.5% repeated the feat three years in a row.
And just 4.2% of active large-cap equity fund managers were able to stay in the top half for five consecutive years through 2020.
The bottom line: While historical odds favor investors who only aim to match the performance of the S&P 500, the allure of beating the market will continue to have investors wagering trillions.
Editor's note: This post has been corrected to say that the assets indexed to the S&P 500 sextupled and the index itself quadrupled from 2008 to 2020 (not quintupled and tripled).
Like this article? Get more from Axios and subscribe to Axios Markets for free.