It is not uncommon today for a well-diversified investment portfolio to hold 45%-50% in non-US assets. So now is a good time to ask the question can the US-based active managers through skillful stock picking and market timing outperform international financial markets?

The SPIVA Scorecard published semi-annually by S&P Indices provides us with the answer. The Scoreboard tracks the performance of all US-based mutual funds, including those investing in developed and emerging international markets.

The most recent SPIVA Scorecard reported that 89% of developed international equity funds, 90% of emerging international equity funds, and 71% of global fixed income funds managed by US-based managers failed to outperform their respective benchmarks for the five years ended December 31, 2010.

These findings are not new to the financial community. As a matter of fact, Vanguard was started 1975 believing active managers fail, long term, to match the performance of their respective benchmarks.
With almost a 90% chance of underperforming the benchmark why would anyone invest in an active-managed international mutual fund, when low-cost international index funds are readily available?

How do these skillful, well-educated managers fail to match the performance of the international markets over a long-term horizon? Fees… trading costs and operational expenses tend to be higher in international markets making it that much more difficult for active managers to exceed their benchmarks.

SensiblePortfolios has a strong commitment to controlling fees and expenses because we know over the long term, fees matter!!