Despite success this year, underperformance rates are 'abysmal' for large-cap active managers for the long run

cnbc.com:

The S&P 500 may be trading around 2022 lows, but a new report finds active managers are having their best year since 2009. The numbers suggest they still have a long way to go, though.

S&P Global recently published its Mid-Year 2022 SPIVA U.S. Scorecard, which measures how well U.S. actively managed funds perform against certain benchmarks. The study found that 51% of large-cap domestic equity funds performed worse than the S&P 500 in the first half of 2022, on track for its best rate in 13 years — down from an 85% underperformance rate last year.

This is partially due to the declining market, said Anu Ganti, senior director of index investment strategy at S&P Dow Jones Indices. Ganti told CNBC's Bob Pisani on«ETF Edge» this week that losses across stocks and fixed income, as well as rising risks and inflation, have made active management skills more valuable this year.

Despite the promising numbers, long-term underperformance remains, as Pisani noted, «abysmal.» After five years, the percentage of large caps underperforming benchmarks is 84%, and this grows to 90% and 95% after 10 and 20 years respectively.

The first half of the year was also disappointing for growth managers, as 79%, 84% and 89% of large-, small- and mid-cap growth categories, respectively, underperformed.

Ganti said underperformance rates remain high because active managers historically have had higher costs than passive managers. Because stocks are not normally distributed, active portfolios are often hindered by the dominant winners in equity markets.

Additionally, managers compete against each other, which makes it much harder to generate alpha — in the 1960s, active managers had an information edge since the market was dominated by retail