SA #5: VOO – One Of The Best S&P 500 ETFs, But Far From Truly Passive

VOO: One Of The Best S&P 500 ETFs, But Far From Truly Passive
January 4, 2023


  • The S&P 500 Index is probably the most important equity index in the world.
  • For many investors, an ETF that tracks the S&P 500 became synonymous with passive investing.
  • In this article, I will compare the three largest ETFs on the index (SPY, IVV, and VOO) and challenge the passiveness of the S&P 500.
  • Based on historical performance, current expense ratios, scale, and the underlying manager profile, I would personally use the Vanguard S&P 500 ETF to track the index.
  • Within the US, the S&P 500 is a reasonable passive benchmark. From a global perspective, however, it is an active bet on US large caps.

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AgPa #35: Rethinking Active Management

Measuring skill in the mutual fund industry (2015)
Jonathan B. Berk, Jules H. van Binsbergen
Journal of Financial Economics 118(1), 1-20, URL/SSRN

From several of my earlier articles you may (correctly!) gained the impression that I am somewhat skeptical about the value-add of most (not all!) active fund managers. However, an excellent episode of the Rational Reminder Podcast featuring Jonathan Berk and Jules van Binsbergen convinced me of another perspective. This week’s AGNOSTIC Paper summarizes their work…

  • Alpha and outperformance alone do not measure skill
  • The average active manager added value – $3.2M per year
  • Investors identify and reward value-adding active managers
  • Active managers still overcharge – net alphas are negative

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AgPa #21: AI-Powered vs. Human Funds

Do AI-Powered Mutual Funds Perform Better? (2022)
Rui Chen, Jinjuan Ren
Finance Research Letters, Volume 47, Part A, URL/SSRN

This week’s AGNOSTIC Paper compares the performance of AI-powered- and human mutual funds between 2017 and 2019 in the US. Although AI-powered funds are not the holy grail some investors may have hoped for, they still added value compared to their human peers…

  • AI-powered mutual funds did not outperform the US market
  • But AI-powered funds outperformed their human peers
  • And AI-powered funds avoided the disposition- and rank effect

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AgPa #17: European Fund Selection

Fund Selection: Sense and Sensibility (2022)
Guido Baltussen, Stan Beckers, Jan Jaap Hazenberg, Willem Van Der Scheer, CFA
Financial Analysts Journal, 78(3), 30-48, URL

Coincidentally, this week’s AGNOSTIC Paper is a pretty good sequel to the last one. The authors study the performance of globally investing mutual fund that were available for European investors between 2008 and 2020. The results are seamlessly consistent with the literature and are anything but a sales-pitch for active fund managers…

  • In aggregate, active managers underperformed the passive alternative
  • Cheap funds with good track records were more likely to outperform

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AgPa #16: Concentrated Stock Markets (7/7)

Mutual Fund Performance at Long Horizons (2022)
Hendrik Bessembinder, Michael J. Cooper, Feng Zhang
SMU Cox School of Business Research Paper No. 22-11 via SSRN, URL

The seventh and final AGNOSTIC Paper on the extreme concentration in stock markets. This one is an out-of-sample test and documents very similar concentration and positive skewness for US mutual funds between 1991 and 2020.

  • Longer investment-horizons lead to extremer return distributions – also for mutual funds
  • Most active managers underperform passive benchmarks – especially over the long-term
  • Compared to the S&P 500, mutual fund investors lost about $1.3T between 1991 and 2020

But a picture is worth a thousand words…

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