Why Is the S&P 500 So Hard to Beat?

Of the US large-cap funds that existed 20 years before 30 June 2026, 92.6% either closed, merged or finished behind the S&P 500. 36.5% were still open at the end. SPIVA is the free scorecard in which S&P Dow Jones Indices publishes these figures.

This guide explains what the scorecard counts and why funds that closed must count. It then gives three reasons the index is hard to beat. It ends with what the numbers do not show.

An active fund is a fund whose manager picks stocks to try to beat an index. An index fund holds the index and does not try. SPIVA leaves index funds out, so it scores active funds only.

The scorecard takes every active US large-cap mutual fund and exchange-traded fund that existed at the start of a period. It asks one question of each fund: did it finish behind the S&P 500 over the period? Fund returns are after fees. The index return carries no costs.

The mid-year 2026 edition reports the answer over six periods, all ending on 30 June 2026. Over 1 year, 78.7% of funds finished behind the S&P 500. The share was 76.6% over 3 years and 89.3% over 5 years. It was 83.3% over 10 years, 90.5% over 15 years and 92.6% over 20 years.

The climb is not a straight line. The 3-year share (76.6%) is below the 1-year share. It is the lowest of the six. The 10-year share (83.3%) is below the 5-year share. The shares are highest over the 15-year and 20-year periods.

Over the first six months of 2026 alone, the share was 67.2%, lower than any of the six periods. S&P's own summary calls the first half of 2026 a more supportive backdrop for active managers than recent years.

A fund that closes drops out of an average of the funds still open. If the funds that closed did worse than those that survived, that average flatters the group. SPIVA avoids this by starting from every fund that existed at the beginning of the period. A fund that closed or merged during the period counts as behind the index.

The scorecard also reports a survival rate, the share of starting funds still open at the end. Over 1 year it was 96.8%. Over 10 years it was 68.8%. Over 20 years it was 36.5%.

The chart splits 100 starting funds into three groups. Over 20 years, 63.5 closed or merged. A further 29.1 survived but finished behind the S&P 500. The remaining 7.4 beat it.

Counting survivors alone changes the picture. Among funds still open, 75.8% finished behind the index at 10 years and 79.8% at 20 years. At one year the figure is 78.0%.

The share barely moves with the horizon. Most of the rise in the headline figures is funds closing, not a widening shortfall among those that lasted. These survivor shares are our arithmetic from the scorecard's own tables.

The rule has a limit. A fund that beat the index for most of the period and then closed still counts as behind it. The scorecard measures the odds facing someone who picked a fund at the start. It does not grade each fund's skill.

William Sharpe set out the arithmetic in a 1991 paper in the Financial Analysts Journal. A passive investor holds every stock in the market in market proportions. Every other investor is active.

Together the two groups own the whole market. So the return on all active dollars combined, before costs, equals the market's return. Gains and losses against the market cancel out across active dollars.

After costs, the average active dollar earns less than the average passive dollar, because active management costs more to run. Sharpe's argument relies on that fact. SPIVA reflects the cost side in its method: fund returns are after fees, while the index return carries none.

Morningstar's Active/Passive Barometer gives a second read. Its mid-year 2026 report compares active funds with passive funds, so the benchmark also carries costs. Over the 10 years to June 2026, 33% of active funds in the cheapest fifth of their category survived and beat their passive peer. For the priciest fifth, the figure was 20%.

These shares cover all categories, not large-cap funds alone.

The report says long-term success rates were lowest among US large-cap strategies. Its full large-cap tables sit behind a registration form, so we quote only the public summary.

The shares above count funds. Returns show how large the gap was. The chart compares the S&P 500 with the average large-cap fund. Equal-weighted counts every fund the same, whatever its size. Asset-weighted counts larger funds more.

Over 20 years, the average large-cap fund returned 9.5% a year, against 11.4% for the S&P 500. That is a gap of 1.9 percentage points a year. A percentage point is one unit of a percentage: 11.4% against 9.5% is a gap of 1.9 points.

Weighted by fund size, the funds returned 10.3% a year over 20 years, a gap of 1.1 points. The larger funds did better than the average fund, but they still trailed the index over every period in the chart.

Hendrik Bessembinder studied every US common stock in a database of US stock returns (CRSP), from 1926 on. The abstract of the working paper reports that four of every seven stocks had lifetime returns below one-month Treasury bills. Those bills are loans to the US government lasting one month.

The abstract also reports that the best-performing 4% of listed companies account for the net gain of the whole US stock market since 1926. Together, the other stocks matched Treasury bills.

A fund that holds the whole market owns those few.

An S&P 500 fund owns the large companies in that index, which is a narrower set than the study covers. A fund holding a smaller set of stocks is more likely to fall behind if it misses them. The abstract says this skew helps to explain why poorly diversified active strategies most often underperform market averages.

The study covers all US listed stocks, a wider set than the S&P 500. It studies stocks, not funds. It was published in the Journal of Financial Economics in 2018.

The scorecard does not show that no manager can beat the index. Over 20 years, 7.4% of the 690 starting funds did. Over 10 years, 16.7% of the 912 starting funds did.

It does not show that any named manager cannot. Each percentage describes a group. It also does not say whether a fund that beat the index in one period beat it in the next.

The scorecard covers mutual funds and exchange-traded funds in one US database. Funds outside that database are outside the scorecard.

It cannot test Sharpe's arithmetic directly either. The arithmetic applies to all active investors in a market taken together. A set of mutual funds is only part of that group.

The shares also depend on the end date. Every SPIVA and Morningstar figure here runs to 30 June 2026. A different end date gives different shares. Our guide on systematic investing against the S&P 500 asks the same question of a rule-based approach.

Sharpe's arithmetic says active investors as a group can only match the whole market before costs. Costs then pull the average below it. What the scorecard shows is that most funds in this group finished behind the index after fees, over periods up to 20 years.

It leaves open whether any single manager can beat the index. Our guide to investor track records reads two records that can be checked against a primary document.

This explainer is part of the YX Insights Academy. Each one takes a single idea and checks it against real data.

The same approach runs through everything else we publish:

Good places to start on the website:

Over the 20 years to 30 June 2026, 7.4% of starting active US large-cap funds beat the S&P 500, by SPIVA's count. Over 10 years it was 16.7%. A fund that closed counts as behind the index, so these shares treat closures as failures to beat it.

No. Fewer than one in ten large-cap funds beat it over 15 years and over 20 years, but the data describes groups of funds. It does not show that any named manager cannot beat the index. It does not show that a fund that won once will win again.

Survivorship bias arises when an average counts only funds that are still open. Closed funds are absent from that average, which flatters the group. SPIVA starts from every fund that existed at the beginning and counts closures as behind the index. Over 20 years, 63.5% of starting large-cap funds had closed.

S&P Dow Jones Indices publishes the SPIVA U.S. Scorecard free on its website. The mid-year 2026 edition covers data to 30 June 2026. The tables used here are Report 1a for the share behind the index, Report 2 for survival and Reports 3 and 4 for average returns.

DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.