Active vs Passive: A Bright Spot for UK Small Caps

We look at the latest data from the SPIVA® Europe scorecard and key findings.  UK Small Caps are one of the few bright spots.

What is SPIVA® and how does it inform the active vs passive debate?

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Active vs Passive: a bright spot for UK small caps

Jackie Qiao, Head of Fund Research, Elston Consulting
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• Most active managers underperformed benchmarks in 2024
• EM and UK small cap stocks have greatest potential for alpha
• Active management results deteriorated with recent volatility and uncertainty

What is SPIVA®?

​The S&P Indices Versus Active (SPIVA®) is a scorecard published by S&P Dow Jones Indices that compares the performance of active equity mutual funds against their benchmarks, published semi-annually.  We focus our analysis on UK domiciled funds available to UK investors.

What are the key findings for major regional markets over 1 year and 5 years?

Over 1 year to end 2024, EM equity managers were the most successful with over 32% of active funds outperforming their market benchmark.  US equity managers were the least successful with only 21% of funds outperforming their market benchmark.
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Over 5 years to end 2024, European equity managers were the most successful with over 28% of active funds outperforming their market benchmark.  US equity managers were the least successful with only 10% of funds outperforming their market benchmark.

What are the key findings for major regional markets over 10 years?

Over 10 years to 2024, UK equity managers were the most successful, with 18% of funds beating their market benchmark.  US equity managers were the least successful with just 7% of funds outperforming their market benchmark.

Restating the numbers in a different way, over the last 10 years 93% of US equity active funds available to UK investors underperformed their market benchmark, supporting its reputation as the most efficient market. Figures for UK equity active funds are slightly better with 82% of UK active funds underperforming their market benchmark.
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This is why we argue that whilst there is always room for different styles at different times and to reflect different preferences, the challenge for active managers within a single asset class is delivering on persistency over time.

UK Small Caps are the bright spot

Within the UK, we see that small cap funds continue to offer the greatest potential for alpha, with 33% of managers beating the benchmark over a 10 year period compared to just 12% for large/mid-cap stocks. The greatest outperformance can be seen over a 5 year period, where 42% of managers of small cap funds outperformed. The data suggests that when looking at an allocation to UK small-caps, it makes sense to consider an active approach, where there is greater potential for alpha.  For this reason, the active vs index debate is more nuanced than some would like to imply.

How have results evolved

When looking at how the SPIVA® results have evolved each year, again the UK and US have very different results.

For the UK, best year for performance was 2021, where 66%, 56%, and 38% of active managers outperformed their index over for 3, 5 and 10 years respectively.  Conversely, the worst year for active manager performance was 2022 where 23%, 21% and 25% outperformed their benchmark. 
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Advocates for active management often tout opportunities in volatile and uncertain markets relative to an index that falls with the market.  But the data for the 3 years to 2022, 2023 and 2024 suggests that there was no value add from using an active fund during the most recent era of market volatility with only 23%, 5% and 14% respectively outperforming their benchmark.

​A similar picture is evidenced by SPIVA® data throughout those years for the US. Active manager success rates dropped significantly after 2021, from 32% outperforming their benchmark over the 3 years to end 2021 to just 8% over the 3 years to end 2024. Again, this leads us to the notion that, contrary to what active managers often claim, they have underperformed their benchmarks in this uncertain and volatile environment.

Summary

We continue to see the most successful results in active management to come from those operating in less efficient markets, such as Emerging Markets and UK small cap equities. The recent inflation shock proved difficult for active managers to navigate, challenging the idea that volatility creates opportunity for stock pickers. Detailed manager research remains a crucial component for success when considering an active allocation, with the challenge – as ever – being – the quest for persistency.
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For more information on SPIVA® read our 2021 article and watch our CPD webinar.

23rd May 2025