More Money Podcast - 370 The Case for Passive vs. Active Investing - Anu Ganti and Joseph Nelesen, Senior Directors of Index Investment Strategy at S&P Dow Jones Indices

Episode Date: May 31, 2023

As we know, I'm a huge advocate for index investing and today on the More Money Podcast I have two guests who are sharing their expertise on the subject including some of the pitfalls of investing in actively managed funds. Anu Ganti and Joseph Nelesen, both Senior Directors of Index Investment Strategy at S&P Dow Jones Indices, are joining me today and I'm telling you, this episode is chock-full of valuable investing info! Anu is a CFA charterholder and holds her MBA in finance and economics from Columbia Business School, as well as her bachelor’s degree in finance and marketing from NYU’s Stern School of Business. She is often sharing her expertise with both print and broadcast media outlets and helps lead the index investment strategy team in providing research and commentary on the entire S&P DJI product set, including U.S. and global equities, thematics, commodities, fixed income, and sustainability indices. Prior to joining the team, Anu worked in the asset management space, completing a post-MBA rotational program at Russell Investments within their fixed-income research and trading divisions and also worked as a portfolio manager focusing on emerging market equities at Parametric Portfolio Associates (a subsidiary of Eaton Vance). Joseph holds a Ph.D. from Northwestern University, an MBA from the Kenan Flagler Business School at University of North Carolina, and a Bachelor of Arts with honors from the University of California at San Diego. He also helps lead the index investment strategy team, but prior to working at S&P DJI he headed iShares Institutional Factors Strategy at Blackrock and held roles in exchange-traded product research and development. Joseph also previously worked in mergers and acquisitions and corporate investment banking with Citigroup and Bear, Stearns & Co. In this episode, Joseph and Anu challenge the myth that indexing only yields average investment returns and share how SPIVA measures actively managed funds against their index benchmarks worldwide using the data and insights they've gained over the past 20 years. This episode is full of some great information and will definitely be perfect for anyone wanting to understand why index investing is a tried and true long-term investment strategy. For full episode show notes visit: https://jessicamoorhouse.com/370 Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello, and welcome back to the More Money Podcast. This is episode 370 of the show, and I'm your host, Jessica Morehouse. Welcome back. I'm so excited to share this episode with you because, as you know, if you're a longtime listener, you know that I have a bias towards passive investing, and I'm not a big fan of active investing. And to kind of talk more about this and really present the data, the facts, the information, the numbers. This is why I needed to invite my next guests on the show, because they really are experts at exactly this. I've got Annie Uganti and Joseph Nellison on the show. They are both senior directors of index investment strategy at S&P Dow Jones Indices. And we are going to go through some of the

latest reports. They are constantly coming out with new information, new facts, really to showcase whether active management, you know, does it ever beat passive management or does it ever beat the market? There are some interesting stats that we're going to go into. And honestly, I highly recommend going to the website, I will include it in the show notes for this episode, but it is on the S&P global.com website. And there's a specific landing page for SPIVA. And you can see, you know, how these actively managed funds and portfolio managers are doing compared to the overall market in not just, you know, the US and Canada, but other countries like Mexico,

Brazil, Australia, India, Japan, they've got it all a lot of important data. And not only that, a lot of great educational resources, free, free, free, free, and really well laid out and thought out. So highly recommend you checking that out after out and thought out. So I highly recommend you checking that out after listening to this episode. So we've got a lot of great stuff to get into. So let's get right into it. Let's get to that interview with Anu and Joseph. Welcome to the More Money Podcast, Anu and Joseph. I'm so excited to have you on this show and to talk about something I've actually never talked about on the podcast. So I'm really excited to have you on this show and to talk about something I've actually never talked about on the podcast. So I'm really, really excited about it, which is Spiva. So

let's dive right in. And Joe, I want to start with you. And first, too, I'm going to get you to kind of introduce yourselves a little bit so people can understand kind of your connection to Spiva. But Joe, do you want to kind of share a little bit about yourself? And then we'll kind of dive into what exactly Spiva is. Sure. Thanks, Jessica, for having us on. So I'm part of the index investment strategy team here at S&P Dow Jones Indices, along with my colleague, Anu. And we're the team responsible for, among other things, writing the SpIVA reports, which we can talk about in a few minutes. But I think, you know, I'll say SPIVA has been a part of my professional life for quite a while, even before I was at S&P. So, you know, it's something I

appreciate as a consumer and also now as a producer. And before we, you know, really get into it, Anu, did you want to introduce yourself? Yes, no, happy to. It's so nice to be here, Jessica. I'm Anu Ganti, and I've been at S&P Dow Jones Indices starting the seventh year now, so time flies. And it's been fascinating to observe the SPIVA franchise grow and the growth of index investing over the past decade. And prior to my experience at S&P, I used to be a portfolio manager in emerging market equities and was actually a client of S&P's. So it's very interesting to be a part of the indexing world because it's very exciting times right now. So glad to be here. I'm well, I'm excited to have you both and excited

to dive into this topic. So let's, let's first, you know, Joe, if you wouldn't mind kind of share a little bit about what exactly SPIVA is, because, you know, even though I've been familiar with it, and I try to tell as many people as I can to check this, you know, really great resource, what exactly is it for people who aren't familiar? Sure. So SPIVA is an acronym for S&P Indices versus Active. SPIVA kind of rolls off the tongue. And before I get into how it became important today, I do like to, I hope you'll indulge my geeky side a bit and go over a little bit of the history of how we got here with indices and active funds and why we compare the two today. At Root, I think a lot of us are just intellectually curious people, and we like to find answers and use data to help

solve puzzles. And I think if you look historically, I mean, look, people have invested throughout history. You can go back, I think, to the Neolithic era, last thing I read, which is a lot of weird history around people diversifying portfolios of grain and other minerals they traded. So, there's this diversification story that really goes way back. Fast forward a little bit, you'll find stock exchanges have been around for about 500 years at this point, the first ones emerging in Europe. And then by the 18th century, you started to see some diversified funds as well. And so this is a landscape that is not entirely new, although it has grown. Late 1880s or so, in the 1800s in the U.S., you start to see some closed-end funds as well.

And I bring that up because around that same time, 1884 to be precise, two gentlemen in the U.S., one named Charles Dow, you've probably heard that name, and the other Edward Jones. They started calculating a composite value of 11 different stock prices. It was mostly railroads, which you can imagine at the time that was a big part of the market. They named that the Dow Jones Railroad Average. It was a number that they started to publish in a newsletter that eventually became the Wall Street Journal. So right off the bat, we can say that there was a world with indexing and active that existed almost 150 years ago. And of course, since then, we've seen massive change, really a proliferation of active funds. And in fact, today, I've seen papers and your listeners probably have,

there are actually more active equity funds than there are stocks trading in the market. So it's a huge landscape, it's hard to navigate. People are fighting tooth and nail for alpha. At the same time, we at S&P, among others, are calculating hundreds of thousands of indices across virtually every asset class. And so researchers and others and investors are using those. And there's some flagship ones that people are familiar with, like the Dow Jones Industrial Average or the S&P 500, the latter of which really started to launch this index revolution in the 1970s when you started to see the first index fund. And so suddenly it was no longer just academics. It was really actually being able to invest in indices and active. And a lot of other funds have clearly followed.

And long story short, as more and more people began to embrace indexing over the last 30 years or so, with the rise of ETFs and the movement away from certain higher fee products, there's been a lot of questions about performance. That brings us to SPIVA. So in 2002, 20 years ago, at the end of last year, our researchers launched the SPIVA reports in response to these kinds of actively managed funds to what we and others consider appropriate benchmarks in different markets around the world, including Canada, but also the United States and Europe. And in fact, we have at this stage nine different reports we do that cover every continent except Antarctica last time I checked. And so we have active managers really virtually everywhere in the major markets around the world and in fixed income and equity, etc.

And the purpose of these scorecards is to take a really objective data-driven view on the relative performance of active and passive. They do this by comparing how active funds have performed over different short and long-term time horizons. And I don't know that anyone knew at the time in 2002 how influential they had become, but I think you heard from both Anu and me that they's persistent and is quoted often, is that we publish these results on a regular schedule. So at this point, it's every six months. We do a mid-year and then we do an end-of-year report that take into account consistent elements of methodology. And those include survivorship. In other words, we're going to look at the landscape that existed X years ago and which funds have survived since then and not. We also look at style consistency, value versus growth. We use asset-weighted returns, so that way funds that

are more popular can play a bigger role. We show those data. And finally, we look at things from an apples-to-apples perspective. So you're really comparing managers to a fair, appropriate benchmark using a third-party data source that others could choose to replicate if they wanted to. I think that's kind of how you approach science, whether it's middle school or advanced stages like we're at here, we want things to be transparent and clear to the readers. And to really everyone who's consuming these reports that, you know, they can have some confidence in where the results are coming from. And the bottom line is, I think that kind of transparency and consistency and the fact that we've used the same approach for 20 years makes it now a really robust data set that's followed by many people in the industry. I mean, yeah, absolutely. I mean, myself being one of those people that loves to kind of follow it. Anyway, I wanted to kind of jump on a word that Joe mentioned, which was alpha. And for anyone

listening, you know, what does that mean? Especially when we're thinking about, you know, I think often of young investors or people who want to get started investing and they are heavily influenced either by social media or just information online, like, you know, very different than in the past where it's just like you hear your neighbor, oh, he made some money on some stocks. Now it's just everyone in the world. It seems like you're being influenced with this idea of you can earn higher returns. Why wouldn't you do? Do you want to kind of share a little bit more about what Spiva can be used in terms of a resource to really understand? Is this realistic, these expectations of earning significantly more than the average returns?

Sure. It's an excellent question, right? When you talk about younger investors, and you heard Joe give you the history, right? And we've been producing this for more than 20 years. And you mentioned the word alpha, which is an important concept. And when you think about it, we've been doing this for more than 20 years. So the natural question is, why is it so hard, right? Why is it so hard for active managers to outperform? They have the resources, they're smart people. So why is it hard? And I think the alpha question goes to an important concept, an important reason for why it is so hard. And that's really just the professionalization of the industry, if you think about the history and where we are right now. And if we go back,

say, let's go back to the 1950s, for example, if you were a portfolio manager and you were trading with someone, perhaps on the other side, it was someone who was a retail investor who maybe didn't have the same resources as you. But that started to change in the 1970s as professionals started competing against each other. And then the game got harder. So what happens as a result of that is when funds started to move from active to index, the least capable active managers lost the most assets. So as a result of that, the quality of the survivors goes up and it enhances market efficiency. So it's important to understand that investment management is a zero-sum game and there's no natural source of outperformance or alpha. So if I'm going to win on one side, on the other side, someone's got to lose.

It's really a zero-sum game. So that's very important to understand. And another important concept that I would recommend for younger investors is just cost. So if you think about it, active managers generally have higher costs than that of passive for, say, trading and overhead and research. And we do a study at S&P where we try to estimate the fee savings that investors have achieved. And what we do is very simple. So what we do is we take the difference between the average expense ratio of active and index equity mutual funds, and we do it every year. We take that difference and we multiply it by the total value of indexed assets for our S&P 500, S&P 400, and S&P 600 index.

So that way we've covered the cap spectrum. And then we aggregate those results. And when you aggregate the results over 26 years, the number comes out to roughly $403 billion, if you think about that. So that's definitely a big number, right? But I always like to tell people that this number actually understates the full cost savings because we've only included a few of our indices at S&P, and we certainly haven't included the entire industry. So the actual savings that index investors have achieved is actually much larger, if you think about it. So, you know, we've talked about cost. We've talked about, you know, alpha, you know, that there's no natural

supply of alpha. A final important headwind, an important reason why it's so hard is really an underappreciated concept. And it's called the skewness of equity returns. So if you think back to your math class or your statistics class, think of a normal distribution. Stocks don't work like that, right? A stock can go down 100%, but it can go up by much more. So what that means is that outperformance is driven by a few winners, a few stocks. And the way we measure it is to look at whether the average return is greater than the median constituent return. So skewness is a very important concept. And it's important because what it does is if outperformance is driven by a few winners, it can hinder more concentrated active portfolios.

And we see this across regions. For example, in the US, we saw that over the past 32 years, 28 of them were positively skewed for the S&P 500. If you look at Canada, for example, with the TSX composite, we saw that 20 out of the past 25 years were positively skewed. So very prevalent across equities across most regions. So just to sum up, there's really three key reasons. There's the professionalization of the industry. There's cost. There's the skewness of the equity returns, which really show why it's so hard. It's so hard to beat the market.

And SPIVA, as you've heard Joe talk about, is really evidence of this. And if you look at the long-term statistics, the long-term statistics tend to be bleaker, with 91% and 95% of our large-cap funds underperforming over a 10- and 20-year period in the U.S. If you look at Canada, 85% of Canadian equity managers underperformed over 10 years. So the key takeaway is that most active managers underperform most of the time. Yeah. I think what's interesting, and Jo, I want to kind of hear your thoughts on this, is what I often hear, maybe what you often maybe see when you're talking to people or seeing conversations online is that people will look at a stat like 80% of you know, active funds underperform, but they will think that but I can be part of that 20% that is in the underperformer. I'm curious, can you share some stats that you have from, you know, several, you know, decades of Spiva scorecards to kind of maybe, you know,

give people that idea that listen, it's unlikely that you may be in the 20% or maybe you know, decades of Spiva scorecards to kind of maybe, you know, give people that idea that, listen, it's unlikely that you may be in the 20% or maybe you are, but you shouldn't bet all your eggs on that, you know? Yes. And I think, you know, a new hit on some of these points that I think are worth underscoring to begin. And one of the things she talked about was the fees that factor into this over time, right? That fee adding up periods. I think recently you had Peter Bink-Murtry on, if I'm not mistaken, talking about fees. And it's just even if you're selling a mutual fund, there's some charge on the back end there that all of these things add together and impact that return and really make that hurdle higher for the active fund to outperform. So, you know, I'll touch on some of the numbers from last year and then how those trace back

over the decades, like you said, like a new mention, you know, 95% or so of U.S. large cap funds underperformed the S&P 500 over the past 20 years. That's a striking number, but it's not really an anomaly. It's actually pretty representative of what we see across regions over those long time horizons. The three things I'd say is that first, you know, gross of fees, most managers underperform most of the time. And so even on a one year basis, it's relatively rare, but not unheard of that, you know, more

than half of managers will underperform in various asset classes. And second, that tendency to underperform rises as the observation period gets longer. And third, when good performance does occur, right? And so this is where folks would say, well, we only pick the best managers. We obviously don't pick average. It doesn't tend to persist. And we can talk a bit more about that in a minute. But I think it has been touched on. It's really hard to achieve outperformance. Not impossible, but there's these headwinds like the SKU, and you talked about the fees and the professionalization, those kind of big three. But what was interesting about last year, 2022, was that I think for the first time in a long time, you had a period that many active

managers have said they needed, right? When everything was being driven, not everything, but a large part of the return driven by a small number of very mega stocks, FANGs being part of that discussion, quantitative easing and money flowing into markets. The argument was in these bull markets with such high skew or concentration of returns, it's hard to stand out. So what did 2022 offer? Well, kind of everything opposite, right? Markets were generally down. You had the TSX composite down almost 6%, S&P down about 18%. You had higher dispersion, which is really the difference between the best and worst performing stocks. Active managers like that because if they make good picks, they're more rewarded for it. You had higher volatility.

And finally, you had that skew situation actually reverse. In the case in Canada, for example, and in the US, you had nearly 60% of stocks over the course of the year outperforming the index itself. And that was happening because many of those big names were starting to pull back. And so you could throw a dart at the proverbial dartboard and be more than 50% likely to pick an outperformer. So what happened in that context? Last year in Canada, I'll share a few stats with you. In the Canadian equity category, you had 52% of managers underperformed their benchmark. So just over half, right?

In the US, it was about US equity, 58%. So somewhere between 50% and 60% below. Over 10-year horizon becomes more about 85%. Same thing in the dividend and income category, close to 72% over 10 years. Now, what I also think is interesting and a new, I'll say she was probably one of the better EM managers out there when she was doing this job, but people talk about asset classes like small caps and EM or international, for example, where a manager's skills should be more pronounced. We don't see the data necessarily to support that. In Canadian small and mid-cap equity, you had 98% of managers underperformed

over 10 years. In global equity, it's 97% over 10 years. And so, the last thing I'll say on this, to get to that point around, you know, being able to pick and lasting, Anu made a point about persistence, right? Funds or liquidation and survivorship and that sort of thing. Over 10 years, ending in December of last year, 45% of Canadian equity funds were either merged or liquidated. So if you put yourself back in 2012, you'd have to say with high confidence that you would not only pick that 55% of funds that would survive, but some percentage among them that would do it persistently. And on that last point, we find that we publish a companion piece called Persistence Scorecards that talk a little more about

those sort of data and how well managers can keep up their outperformance over time. Mm-hmm. Yeah. I mean, that's, I feel like an argument I hear a lot from, you know, portfolio managers, advisors, especially people that I usually talk to the people who are working with these people and aren't necessarily happy with the, you know, performance just suggest another one and another one. And it's probably because they know that, oh, we're just going to, you know, rebrand this or, you know, repackage this and just move you into a new portfolio and completely ignoring the fact that, you know, for years, they're probably selling a portfolio that was underperforming. Anyone want to kind of come back to you? Like I kind of mentioned, a lot of people still think that either index investing is too simple, too boring, or it's a trend, or that it's manipulating the markets. And not everyone can be an index fund investor, because if they do,

it will just kind of wreak havoc on everything. And, you know, most, you know, lots of people would prefer doing active investing because they do feel like they would be in that high percentage of people that will be able to outperform the index. Why do you think this is like more from the investor perspective? Do you think it's just blind optimism? Do you think it's because they just, you know, they just don't want to be average? I hear that a lot. People don't like the term average and they don't want to be considered average. I think, you know, you're exactly right. And I think to examine this, it's important if we look at the behavioral biases and tendencies that we have as investors and just as humans, right?

And, you know, it's fascinating because investment management is not like other professions, because in other professions, the harder you work, the better you're likely to get, right? So for example, you know, I'm a tennis player. So the more I practice tennis, the better I'm likely going to be. Or, you know, for your Canadian audience, for the ice hockey fans out there, the more you practice, the better you're likely going to get. That's not the case with investment management. And you hit the nail on the head when you said that people want to be above average and people want to win. And a common misconception historically was that indexing was settling for average. But the history and the SPIVA data that you hear us

talking about has clearly shown that that's not the case. And SPIVA is evidence of that. And I do like to point out that there are managers, and Joe referenced this earlier, there are managers that do outperform, and there's a minority of them. But it's certainly rare to see the consistent outperformance. And you heard Joe talk about the persistent scorecards. So what that really means is that skill, skill is hard to find. And we know this from our persistent scorecards. And over time, skill can persist, but luck dissipates.

And I think that's key to note when looking at our SPIVA scorecards as well as our persistence scorecard. Another point to touch on is just to thinking about style bias. For example, you know, you heard Joe talking about some of the Canadian stats. What we historically have seen is that Canadian equity managers tended to do better when U.S. equities were outperforming. So that's something to keep in mind as well are those what's going on under the hood of the portfolio and where are the managers tilting outside of their benchmarks. And it's important to distinguish that from true skill. And we've talked about, you know, active. We've done a lot of studies about, you know, favorable conditions for active. For example, Joe talked about dispersion earlier, right? And we got that in 2022. We got the higher

dispersion. And, you know, that greater dispersion is important because it means greater opportunity for stock pickers with skill to add value. And that's a very important caveat, because what people tend to forget is if you don't have the skill, there's also greater opportunity for embarrassment, right? So that's always something important to remember. And it's not always a guarantee. So to give you an example, 2021 was one of the high dispersion years, and we still saw 85% of US large cap active managers underperform. But historically, we've seen that more active managers underperformed in low dispersion environments. So it's definitely something, a condition to keep an eye on. You heard Joe talk about the mega caps earlier. Shopify in Canada was a good example of this, right? Because when the stock

was doing well, managers who were underweight got hurt. And vice versa, when it plummeted last year, managers who were underweight actually benefited. So the influence of large cap stocks is very relevant as well. And there's different lenses. You know, we've talked about volatility and dispersion. We've talked about mega caps. You can also look at market conditions for active from a factor lens. For example, historically, we've seen that fewer active managers underperformed in the worst environments for low volatility. And what that suggests is that active managers as a group tend to be underweight on the least volatile stocks, which is interesting. So it's helpful. Joe mentioned this earlier from doing this for more than 20 years. Every year that

we do this, we just get more data at our fingertips to understand what are the potential favorable conditions. And 2022, you got the higher dispersion, you got the underperformance of the mega caps, you got a down market, which is also relevant because, you know, in a down market, active managers can hold cash, right, if the market declines and gain that advantage. But still, overall, you had all of those things. And we still saw that 51% underperformed in the US for large caps, and we saw 52% underperform in Canada. So that really tells you how hard it is. Yeah, I think another, I was just thinking of another argument that I remember hearing too, is when there is a situation where active funds are doing

better than expected, or there's more funds that are outperforming the index, that's usually, you know, a selling point. It's like, well, look at us. Look at this fund. It did really well this year. And yet they won't necessarily also point to the fact that maybe the fund didn't do well in the past 5, 10, 15, 20 years or that it didn't even exist. It's a brand new fund.

So there's no data to back it up. And when we're thinking about investing, I think it's really important to remember we're not doing this for just one year. We're doing this for hopefully years, you know, into the future, including while we're retired. So you have to think long term. But I'm curious, too, do you get ever arguments from people being like, well, what's the point of looking at historical returns? Because there's no, you know, guarantee or indication of what could happen in the future? Does anyone want to kind of jump on that? Yeah, I'll take a stab at it to start. I'm sure you'll have plenty to say, but there's, you know, anything, questions with future in them are always, are always sensitive.

But, you know, I think, yeah, the past, past not being precedent, that's a well, well, well-known phrase. And I think, again, going back to survivorship data and persistence, this totally feeds into that dialogue because it's really all about hindsight's 2020, as we say, right? And I think thinking about the biases, put yourself in the position, let's say, 10 years ago or five years ago as an investor? Would you be able to select the best funds? And you could say, well, sure, I'd pick the top quartile ones, of course. Okay. I like to eat, and I visited a town I used to live in, and I was excited about some restaurants that I discovered were gone, right? And you'll catch this analogy in a minute. But it inspired

me to look like, well, what is the survival rate of restaurants? And before all the closures related to pandemic issues, just in general, you'd find that 60% of restaurants actually fail after just one year. And after five years, 80% are gone. It's kind of similar to what we're seeing in these funds that first-year rates are much higher in restaurants. But you see the point that you can't – it's hard to predict, even places you like, they just don't make it for a variety of reasons. And I think the investor landscape is no different. Now, when you think about the short term, and I knew touched on this in terms of what

managers do, and she talked about Shopify, how a certain stock can make a big difference. You know, some things that we found in 2022 were a bit interesting, right? In Mexico, for example, we look at equity managers there and found that, you know, more than half of them outperformed the index. And when I started to dive into the holdings, I found that virtually all of the top quartile funds were holding things that were not in the benchmark at all, or sometimes not even in the same asset class, like fixed income ETFs, or they held different kinds of securities outside of their markets,

which is fine. But you need to know that as a consumer and think, is that repeatable? Same thing in South Africa, fixed income managers holding longer-term bonds in a short-term category, getting outside of that risk range that you would expect as an investor. And the reason I bring that up is because it may not be persistent. And so to bring it back to Canada, again, the persistent scorecards that we produce typically follow SPIVA. We'll see them in the next month or so. But the last period we covered was through June of 2022. And I'll give you a quiz here. If you looked at the top quartile managers as of June of 2020, right? So over the previous 12 months in that top quartile, how many of those,

what percentage of those managers do you think stayed there for the next two years? I don't know, 50%. That's just a wild guess. That's generous. I'm not going to ask you because she knows the answer. It's actually zero, right? It drops off quite dramatically. You'll see this in other places where you may be, you know, some subset make it first year and the second year they diminished it. It drops off dramatically out of that top quartile. There's a big reversion effect that we see virtually everywhere we run these reports. The same thing in global equity, U.S. equity. No funds maintain the top half performance over

three 12-month periods. And now we're not even talking top quartile, we're just talking top half, right? And the only exception was international equity where, you know, 12% of funds stayed in that top quartile over three one-year periods. But again, you have to go back and ask yourself, could I have selected those ahead of time, right? And I'll leave you with, if you're not sure about that or overly confident, I'll leave you with one more stat, not from the finance world, which is that, you know, I'm sure this has been replicated, but there was an old psychological study back in the 80s of students who were drivers, college students. And they asked, you know, how many of you would rate yourself well above average in your driving skills? And the answer was 90% of them said they were well above average. So I've been driving around lately. I don't think that's correct. So buyer beware when it comes to assessing your own abilities to predict the future. why you know what would your perspective be on like for me obviously i've got a huge bias that

i'm a passive investor and i think it's like one of the best ways to invest that doesn't mean that i don't sometimes dabble and get you know caught into the peer pressure of it all and have some individual stocks that of course have you know been cut in half in terms of value so you know that's a learning i mean you know you just can't help it you're human, you know, that's a learning. I mean, you know, you just can't help it. You're human. And you know that these things happen. But when it comes to, you know, whether someone wants to get started, and they're considering active versus passive, and there's so much information out there, there's so many opinions out there. What would you want people to know about, you know, some of the benefits, I guess, of active or some of the things to be aware of if they want to still go that active route. And you did you want to kind of take on this? I think that that's

definitely an interesting question. It's a great point going back to the human element and behavioral biases that we talked about earlier, right? And I think patience, patience and courage is key. And, and we wrote a paper a couple of years ago called Courage, Confidence, and Conviction. It was like the three Cs. And it was really about having the patience to sustain that long run out performance. Because like we talked about, no one has a crystal ball. And I don't know what's going to happen in the future. Joe doesn't know what's going to happen in the future. Joe doesn't know

what's going to happen in the future. You don't know what's going to happen in the future, which is why it's so tough. And if you knew then what you wanted to know now, and you had that hindsight advantage, it would have been tough. If you think about some of the stock winners that did really well over the past 20, 25 years, it would have been really tough to hold on to them because even in the long run, they did win over the long run and they did outperform. But you have to go through a lot of periods of pain, right? It was definitely a roller coaster if you think of the roller coaster analogy. There were ebbs and flows. And the question to ask yourself is, do you have the stomach to hang on through the roller coaster?

And it's easier said than done, which is why the beauty of indexing is really admitting ignorance and saying, I don't know. I don't know what the next winner is going to be. So I'm going to have diversification on my side because I don't know what those precious few winners are going to be. Yeah. Yeah. Joe? Yeah. The only thing I'd add, that's a great point. And the only thing I add, it reminds me, I think it's attributed to Harry Markowitz saying diversification is the only free lunch in investing, whether or not he said it still applies here. And I think that you're finding that in indices. But the only point I'd make on top of that is that there's a wave – there's kind of an evolution happening here that we really haven't talked about in this. When we talk indices versus active, it kind of ignores to some degree the fact that active is incorporating indices now more than ever.

I mean, what we've seen for years, and I'm sure you're acutely close to this, is the rise of ETF models, for example, or managers, like I mentioned, in some markets using index products inside of their active funds, right? And so, they're finding a way to maybe move away from some of the idiosyncratic risks of this or that single stock, but using indexes and their sort of built-in diversification benefits as tools in an active asset allocation or portfolio. And so, where that brings me is, you know, an investor doesn't need to say, I'm either going to be active or passive. It's really about building that whole pie with pieces that they can manage and have a little more control over from a diversification standpoint, hopefully at a lower cost along the way. And I think that's the revolution we're seeing now. Yeah, it'll be. It's been an interesting time, even for me. I've been, you know, in this kind of personal finance world for over a decade now. And it's been interesting to see the evolution of information and resources,

but also just, yeah, funds. I mean, when I was in my, I guess, mid-20s and was getting started with investing in Canada, at least, it was very difficult to buy index funds. There was one discount brokerage and it was just index mutual funds. And it was a whole bunch of paperwork. And I'm like, well, gosh. And then there was one bank that offered them kind of like a robo-advisor a little bit, but it was still index mutual funds. And now, cut to 10 years later, and you have so many options. So for me, that is an exciting thing. It's great to have options. But with that, the feedback I get from people is, there's too much information, there's too many options, where do I go? So I hope people get a lot out of this interview. I sure did. I really appreciate you both coming on and

really recommend everyone checking out the SpIVA website and all the great resources on there. Is there any particular resource or anything besides the ones that you mentioned already that people should take a look at after listening to this episode? I think we covered the SPIVA scorecards and Joe talked about how we do this globally across regions. We are literally in the thick of it right now. So, you know, we've released US and Canada, among other regions. So definitely would recommend going

to our S&P Dow Jones Indices website, where we have a dedicated SPIVA landing page. So you can digest, you know, all the data, all the statistics. We also have an Indexology blog site where we regularly blog about these topics, about key themes that are going on, trends within the active versus passive space.

So those are some of the resources that I'd recommend for more information. Awesome. Joe, is there anything else you'd want to kind of share? Yeah, if that's not easy enough, just Google Spiva or Google Indexology. We've been around doing this long enough. They should be the top result. And you'll open the door right there to all kinds of treasures. Oh, yes. So many treasures. Well, thank you again, Joe and Annie, for joining me on the show. It was a pleasure having you both here.

Thank you so much. Thank you. And that was episode 370 with my wonderful guests, Annie Uganti and Joseph Nelson from S&P Dow Jones Indices. If you want to learn more about all the things that we went through, I highly recommend checking out the show notes for this episode where I'm going to link to everything very easily. And you can find their socials, some of those resources we chatted about. Just go to jessicamorehouse.com slash 370. And if you're ever wondering where can I find resources or the information about whatever episode I listen to, you can find it either by going to jessicamorehouse.com slash podcast, or jessicamorehouse.com

slash whatever the number of that particular episode is. And if you don't remember, sometimes I get emails or DMs asking, hey, I listened to this episode with this guest. I forget their name, but it was about this topic. Honestly, I don't hate getting those messages because I will know what you're talking about and then can direct you to the show notes for that episode. So always happy to get those messages if you're thinking of, you know, chatting with me. Happy to chat. Okay, so just a little update to end this episode on. Only two weeks left of this season of the show. Season 16 is capping it at mid-June, which is usually what I did, but the past few years have been going all the way into

July somehow. And this year, I'm like, you know what, I need to wrap this up a little bit sooner because I need to a have a little bit of time for myself during the summer to relax and visit some family in Vancouver as I always do. But also, I have a book to write. And if you were new to the show, that is the big news I've been sharing on the past couple episodes. I am in the thick of writing my first ever book with HarperCollins and I'm so excited and going through all the feelings. Like if you want to know what it's like to get a book deal and then you have to write a book, it's a roller coaster of emotions. It is so exciting and thrilling and like, you know, this was the biggest goal I've had and I didn't think I'd ever achieve it. And then also, you know, a lot of bouts of self-doubt and imposter syndrome and

being like, oh, my God, is what I'm writing total trash? And is everyone just gonna hate what I wrote? And just like starting to go on Goodreads and read comments and criticisms of some of the books that I absolutely love and saying, oh my gosh, if people hate, you know, Brene Brown, they are not gonna like me because Brene is amazing. So, you know, just a lot of ups and downs of, oh my gosh, this is amazing. And oh my gosh, this is terrifying. And I just want to go in a bit of a cocoon and, you know, never come out. But that's, that's the writer's life. That's the real writer's life. Everything that you thought it was, like I used to have the fantasy

of like that money, love, actually of going to like that was the Italian countryside and writing my great novel. Yeah, no, I'm like literally on my couch in a blanket laptop on me and just trying to write with a messy bun. And, you know, it's not glamorous, guys. It is not glamorous. But hey, we're getting through it. And I'm really excited. I'm by the end of June because I've got a schedule because obviously I'm a nerd. I mean, we know this. I have a money podcast, but I've got a spreadsheet to keep me all in line with my word count and all the chapters. And I should be halfway through the book writing process or not the book writing process, but me writing the book by end of June. So that's very

exciting. So that's what's basically been taking over my life, which is why I've been a little bit more quiet on social media and the YouTube channel just because hey, you know, it's hard to come out with new ideas and content for all those different platforms when I'm really my brain is just focused on this one really big daunting task. But besides me wrapping up the show soon, another thing I want to just remind you of, again, if you haven't listened to any of the previous episodes I put out talking about the book, I am gathering interviews. I'm gathering interviews from people like you to potentially include in my book. I'm specifically right now looking for someone to share a story with me who has a history, a family history of wealth. I know that sounds odd, but there's a lot of focus of poverty and not having money in the book. I want to show both sides because money is difficult,

whether you have it or you don't. And I realized I actually don't really have anyone in my personal life. And I've asked a lot of friends and yeah, everyone I know, no, no, no, there's no wealth. There's no wealth. So if you know anyone, or if you were that person, so we can kind of dive in, you can be anonymous, you can be anonymous. If you know anybody, please go to JessicaMurhouse.com slash interview. You can apply or get your friend to apply. I really, really the purpose of kind of sharing that part of it is to show that you can still have, you know, shame and anxiety and negative feelings or just like, you know, not feel good about money, even if you came from wealth or even at some point in your family history, there was wealth and then maybe someone in your family lost it all or something like that. I'm trying to get all these different types of stories so we can ultimately understand that there's so many

different paths people take and everyone kind of feels the same way about money. I don't know too many people even who came from money that feel really amazing about it all the time. So if you know anybody, please let me know because honestly, I've been I've been searching and it is it's been difficult. It's been difficult. But even if you don't have that kind of history, if you also just you know, want to be included, maybe you have an interesting story that you can share, go to JessicaMurhouse.com slash interview and you can apply and hopefully you know, if it works out, I'll get in touch with you. Okay, so that is it for me. So to tease next week's episode, I've got a friend who's been on the show.

I think this is going to be number four, which is a rarity. I think there's only a couple people that have been on the show that many times. Besides, you know, Shannon Lee Simmons, who was recently on the show again. I've got Erin Lowry from Broke Millennial back on the show. She has a workbook coming out. And it's always such a delight to have her on the show. So join me next Wednesday. And then the following week, I've got a two episode week to wrap up this season. I'm going to save who is going to be on the show, but it's a great week.

And also don't forget, I am giving away a ton of books and I'm going to be wrapping up this book giveaway very soon. Go to JessicaMoorhouse.com slash contest to find out all the books I'm giving away a ton of books and I'm going to be wrapping up this book giveaway very soon. Go to jessicamorehouse.com slash contest to find out all the books I'm currently giving away. Do not delay. I'm going to be closing this contest in the next few weeks and selecting winners and shipping off a bunch of books. So please do so. Okay, that is it for me. Thank you so much for listening. Big shout out to my podcast editor, Matt Rideout, and I will see you back here next Wednesday. Have a good rest of your week. This podcast is distributed by the Women in Media Podcast Network. Find out more at womeninmedia.network.