Back in February 2021, Warren Buffett said in his annual shareholder letter, “Never bet against America. In its brief 232 years of existence ... there has been no incubator for unleashing human potential like America.” Whether politicians, economists and investors agree with that or not, it turns out that they should not bet against the S&P 500, and more recently the Nasdaq Composite Index.
In a recent article, Tim Edwards, managing director, index investment strategy, S&P Dow Jones Indices, reminds us that the Standard & Poor’s Depositary Receipt, better known as SPDR, will celebrate 30 years on Jan 29 since it started trading.
According to Edwards, the SPDR is among the largest funds in the world and on some days the most heavily traded. Edwards further compares the performance of actively managed US equity mutual funds since SPDR’s inception. According to him, 2% of actively managed Large-cap core funds beat the S&P 500.
“Even in categories such as small- and mid-sized stocks, and growth — which benefited from the tailwinds of an outperforming universe — a minimum of 81% of actively managed funds underperformed the benchmark,” he says. Overall, across all categories, 90% of actively managed funds underperformed the S&P 500, he found out. “The higher fees typically charged by actively managed funds may be part of why so many funds underperformed. Index funds and ETFs charge fees too, but the results would not be significantly altered when accounting for them,” Edwards surmises.
Not only did SPDR do better than actively managed funds over the long term, but in the past 10 years, the S&P 500 outperformed almost all global markets (see Tables 2a & 2b) with the exception of the Nasdaq Composite Index.
Our own Straits Times Index sits way down the list. Sadly, the MSCI Malaysia Net Total Return Index lost 2% in the past 10 years and around 20% when measured in US dollar terms. Interestingly, in the past 10 years as China leapfrogged economies such as Japan and Germany to get to the second largest economy in the world by GDP, its market benchmark, the Shanghai Stock Exchange Composite Index has not done as well as either the Nikkei or the MSCI Europe Net Total Return Index. Perhaps, there is something to be said for governance and transparency.
See also: STI’s upside from breakout remains valid as risk-free rates fade, but stay watchful for FOMC
Undoubtedly, 2023 was a difficult year for developed markets as central banks in the US, UK, Australia and Europe adopted a rising interest rate policy to curb inflation. Once again, and in terms of US dollars, Nasdaq did better than everyone and anyone else. While the Nikkei outperformed in yen, in US dollars, it was beaten into sixth place. Despite an easier monetary policy in China, the Shanghai Stock Exchange Composite Index, the Hang Seng Index and the MSCI China Net Total Return Index are at the bottom of the heap.
