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CHART CENTRAL

Bulls drive the gap between equity and bonds

The gap between active equity and core bond managers over the past five years widened significantly relative to the trailing five-year period ended 2012, a half-decade that experienced both the global financial crisis and its subsequent recovery.

The median annualized return for large- and small-cap equity funds was 15.6% and 15.2%, respectively, while the median active core bond fund was about 2.3% over the five-year period ended Dec. 31, 2017. Despite some periods of volatility, the latter five-year period was very risk-on as the S&P 500 index was up 15.8% on an annualized basis. Interquartile ranges were tighter over the span as well relative to the five years ended Dec. 31, 2012, when the S&P 500 was up 1.7% on an annualized basis.

Narrower spreads between the best- and worst-performing managers and relatively higher index returns make it harder for active managers to differentiate themselves from their peers. It also weakens their argument against passive investing.