Episode 405: Timothy Edwards - Inside S&P DJ Indices

51 snips

Apr 16, 2026

Timothy Edwards, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices, explains the SPIVA scorecard and how it compares active funds to benchmarks. He discusses survivorship bias, why most active funds underperform over time, differences between equity and bond markets, index rebalancing and IPO inclusion, and how concentration affects indices.

Ask episode

AI Snips

Chapters

Transcript

Episode notes

INSIGHT

Why Bonds Look Better Before Fees But Not After

Bond manager outperformance is slightly better pre-fees but often erased by fees, so bonds still mostly see net underperformance.
Bonds have lower dispersion and skewness versus equities, so fees and survivorship (defaults/liquidations) matter more.

INSIGHT

Past Active Winners Rarely Stay Winners

Persistence of active outperformance is scarce; past winners are roughly as likely to become losers, showing slight mean reversion.
SPIVA persistence reports show top-quartile status rarely predicts future outperformance and underperformers face higher liquidation rates.

INSIGHT

Niches Can Help But Still Mostly Lose

Some niches like international small caps show better active records, but "better" still means ~74% underperform over 10 years.
Higher dispersion and lower coverage in those markets partially explain modest outperformance rates.

Get the Snipd Podcast app to discover more snips from this episode

Get the app

What if the decades-long debate between active and passive investing wasn't really a debate—but a data problem?

In this episode, Ben Felix and Cameron Passmore are joined by Tim Edwards, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices, for a deep dive into the SPIVA Scorecard—the industry's most enduring and data-driven comparison of active versus passive investing.

Tim explains how SPIVA has evolved over 25 years, why survivorship bias matters more than most investors realize, and what the data consistently shows across markets: most active funds underperform their benchmarks—especially over longer time horizons.

The conversation goes beyond the headline results, exploring persistence (or lack thereof) in manager performance, why bond funds don't escape the same fate, and whether combining active funds improves outcomes (spoiler: not really). They also tackle common critiques of indexing, including index rebalancing costs, IPO inclusion concerns, and the role of index funds in market concentration.

Key Points From This Episode:

(0:00:17) Introduction to the SPIVA report and its long-standing role in the indexing vs. active debate (0:01:18) Overview of the episode: SPIVA, index behavior, IPOs, and market concentration (0:03:30) What SPIVA is and how it measures active fund performance versus benchmarks (0:04:14) Why SPIVA was created: to inform—not settle—the active vs. passive debate (0:05:20) How SPIVA has evolved across regions, asset classes, and research dimensions (0:06:59) Controlling for survivorship bias and why it materially affects results (0:08:57) Real-world survivorship rates: ~50–60% of funds survive over 10 years (0:10:12) Core finding: most active funds underperform, especially over longer horizons (0:10:57) Comparison of equity vs. bond funds: slightly better outcomes in bonds, but still mostly underperformance (0:13:44) Structural differences in equity vs. bond markets (e.g., skewness, dispersion) (0:15:06) Typical survivorship rates across markets and how crises affect fund closures (0:16:02) Persistence analysis: past winners rarely remain winners (0:18:16) Global variation: some markets (e.g., international small caps) show slightly better active results (0:20:41) "Better" doesn't mean good: even in stronger categories, most funds still underperform (0:21:31) Do active funds perform better in down markets? Not consistently (0:23:37) Multi-asset portfolios of active funds: 97% underperform over 10 years (0:25:10) Selecting top-quartile funds improves outcomes slightly—but not meaningfully (0:26:46) Surprising findings in SPIVA and how market dynamics shape results (0:27:45) Impact of SPIVA on industry behavior and investor education (0:29:03) Ben shares how SPIVA influenced his own career path toward indexing (0:30:08) The "index effect" and whether index rebalancing creates performance drag (0:31:30) Why the index effect has largely diminished due to market competition and liquidity (0:34:05) Research on IPO inclusion and whether index rules create systematic return drag (0:36:57) How S&P handles IPO inclusion (e.g., 12-month seasoning rule for S&P 500) (0:39:58) Whether index methodology could evolve due to larger modern IPOs (0:42:36) Addressing concerns about large IPOs entering index funds (0:43:52) Historical perspective on market concentration and today's top-heavy indices (0:45:29) What happened to past top-10 companies: many declined, but markets still thrived (0:47:10) Creative destruction: why markets can succeed even when leaders fail (0:49:15) Weak relationship between market concentration and future returns (0:50:55) None of today's top companies were top companies in the 1960s (0:52:16) Key takeaway: markets evolve, and cap-weighted indices adapt automatically (0:53:58) Concerns about index fund growth and its impact on market function (0:54:30) Benefits of indexing: lower fees and often better investor outcomes (0:56:15) Timing the market: why waiting for a bigger drop tends to hurt returns (0:58:52) "Time in the market" vs. "timing the market" (0:59:09) Tim's favorite index: the DSPX dispersion index (1:00:53) Defining success: why happiness is the ultimate metric

Links:

Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/

Rational Reminder on YouTube — https://www.youtube.com/channel/ Benjamin Felix — https://pwlcapital.com/our-team/

Benjamin on X — https://x.com/benjaminwfelix

Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/

Cameron Passmore — https://pwlcapital.com/our-team/

Cameron on X — https://x.com/CameronPassmore

Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com)