Benchmark indices are outperforming actively managed funds in most U.S. equity styles through September, according to a new report from Standard & Poor’s.

Standard & Poor’s Indices Versus Active Funds Scorecard (SPIVA) shows that year-to-date returns put the S&P 500 ahead of 62.6% of large-cap funds, the S&P MidCap 400 in front of 57.7% of mid-cap funds and the S&P SmallCap 600 outpacing 84.4% of small-cap funds.

Third quarter 2004 performance was very much the same as the S&P 500 outperformed 58.56% of large-cap funds, the S&P MidCap 400 Index outpaced 58.01% of mid-cap funds, and the S&P SmallCap 600 Index out-returned 69.50% of small-cap funds.

“A majority of active funds have underperformed benchmarks in this year’s trend-less market,” notes Srikant Dash, index strategist at Standard & Poor’s. “Results of the first nine months of this year are in contrast to that of 2003, where a majority of active funds outperformed indices in six investment styles.”

“The average mutual fund returned slightly more than 1% for 2004,” adds Rosanne Pane, mutual fund strategist at Standard & Poor’s. “Market returns have been subdued this year by concerns over rising oil prices, the geopolitical environment and mixed economic results. In addition, growth opportunities have been difficult to find.”

Standard & Poor’s also determined that longer-term results are consistent with past results. Over the last three years, the S&P 1500 Index outperformed 58.5% of all domestic equity funds, the S&P 500 outperformed 68.9% of large-cap funds, the S&P MidCap 400 outperformed 83.6% of mid-cap funds, and the S&P SmallCap 600 outperformed 78.8% of small-cap funds.

The SPIVA Scorecard is issued quarterly by Standard & Poor’s. It reports on performance comparisons corrected for survivorship bias, shows equal- and asset-weighted peer averages, and provides measures of style consistency. Survivorship bias can significantly skew results as funds liquidate or merge. Over the last 12 months, 6.0% of general equity funds have merged or liquidated. The corresponding figures for last three and five years is 17.5% and 21.8% respectively.

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