Just in the last 30 days, Jeff Sommer for the New York Times has written two articles about the persistence of performance among actively managed mutual funds.

On March 14, in an article titled, ‘How Many Mutual Funds Routinely Rout the Market? Zero,’ Sommer wrote that not a single actively managed mutual fund had consistently beaten the market since the bull market was born in 2009.

Using data from the S&P Indexes versus Active (SPIVA) Scorecard, Sommer looked at a number of funds that were in the top quartile of funds ranked by performance each year for the last six years.

It turns out that not a single fund manager was able to meet this test, and stayed in the top 25 percent for each of the six years that ended in March.  There had been two funds at the end of 2014, but the first quarter results knocked them out too.

This article stuck with me because although I agree with the conclusion to avoid actively managed mutual funds, I think the test is too difficult.  I avidly follow the SPIVA reports (click here for a recent article) and routinely present on the lack of persistent results and the magnitude of underperformance within actively managed mutual funds.

That said, we also attempt to outperform the overall market using passively managed mutual funds by tilting to well known strategies like size, value, momentum and quality.

While we pursue these strategies and think that they will outperform in the long run, and we know that it’s entirely unreasonable to think that these strategies could outperform 75 percent of all funds every single year.  In fact, we often repeat an old saw that these strategies work ‘over time, not all of the time.’

For example, the passively managed large cap value fund that we currently use has beaten the market by an annualized rate of 0.31 percent over the five years that ended Thursday.  While that’s not a huge number in absolute terms, it’s beaten 95 percent of its peers in Morningstar’s large cap value category, which is massive in relative terms.

While this fund outperformed the benchmark for this period and is at the top of the heap relative to its peers, it completely failed the test of beating all of its competitors all of the time.

In fact, this fund was only in the top quartile in three of the last six calendar years and was actually in the third quartile for two of them.  In the persistence test chronicled by Mr. Sommer, this fund would have been knocked out in 2011 when 70 percent of the funds in the category fared better.

When I’ve written and presented the SPIVA results, I’ve always shown the results over an entire period and the data is pretty compelling against active management.  I don’t think it’s necessary, or even appropriate, though, to think that anything, active or passive, could win all of the time.

To beat the market, you have to be different and being different means periods of both winning and losing.  Hopefully, though, your wins will pay for your losses and then some, which is what the academic research shows about value, momentum, etc.

In the end, I agree with the author’s conclusions, but I also happen to think that this particular test is too tough and creates an impossible standard that’s unfair.  Importantly, I don’t think you need this argument to win the debate either, there’s plenty of other evidence that makes the point that at least gives the active management community a fighting chance.