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Key takeaways:

  • Consistency is the key to racking up long-term investment returns
  • iShares Core ETFs offer a way for investors to seek to track the performance of well-known U.S. equity indexes
  • Data shows that U.S. large-, mid- and small-cap indexes outperformed the average actively managed peer fund over the past 20 years1

Autumn is in full swing, so a bit of football trivia is in order — Who’s the leading scorer in the history of the National Football League?

Here’s a hint: this player never scored a touchdown, never galloped into the end zone, or hauled in a game-winning pass.

Instead, placekicker Adam Vinatieri earned the No. 1 spot by hitting field goals and extra points, week after week, for 24 seasons.2 Consistency matters if you want to rack up points over the long term. In fact, the Top 37 leading scorers in the annals of pro football are all kickers.3

The same lesson applies to investing. Given a long enough timeline, investors don’t need razzle-dazzle to get results. It’s consistency that matters. That’s where iShares exchange traded funds (ETFs) can help.

Two decades of strong index performance

Percentage of alpha-seeking funds that underperformed their benchmark (July 1, 2000 - June 30, 2020)

Chart: Percentage of alpha-seeking funds that underperformed their benchmark (July 1, 2000 - June 30, 2020)

Source: S&P Dow Jones Indices, July 1, 2000 - June 30, 2020. Past performance does not guarantee future results. Comparison universe is the indicated S&P Index (S&P 500®, S&P MidCap400® and S&P SmallCap 600®), and mutual funds in each identified category in the U.S. For more information on SPIVA rankings, see https://us.spindices.com/spiva/#/. Index performance is for illustrative purposes only. Index performance does not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Index performance does not represent actual iShares Fund performance and actual performance may be lower than index performance. For actual fund performance, please visit www.iShares.com or www.blackrock.com.

A year to remember

This year, three iShares Core U.S. equity ETFs — the iShares Core S&P 500 ETF (IVV), the iShares Core S&P Mid-Cap ETF (IJH), and the iShares Core S&P Small-Cap ETF (IJR) — earned 20-year track records, long enough to reflect performance that spans multiple market cycles and includes the dot-com bubble of the early 2000s, the global financial crisis of 2008-09, the longest bull market in the history of U.S. stocks, and an unprecedented episode of volatility in 2020.

To mark these fund milestones, iShares is redoubling its focus on the merits of long-term investing with low-cost ETFs that seek to track broad indexes. We conducted an analysis for professional investors that explains why indexing — which was not mainstream when these funds launched in 2000 — is now recognized as a useful long-term investment strategy. In the months ahead, we’ll share insights from our analysis, dispel a few myths and speak with luminaries from the world of investing.

In this first post, we highlight that achieving consistent returns closely in line with the performance of market indexes can be a successful investment approach.

Work smarter, not harder

The past 20 years have shown that it’s common for “alpha-seeking” strategies, generally those that that aim to “beat the market,” to deliver inconsistent results.

Recall that indexing usually refers to owning broad swaths of the investible universe of stocks in proportion to their market values, and that it’s common for people to think of index investing as owning “the market.” In contrast, the objective of many alpha-seeking managers is often to beat the market, usually by trying to buy more of the stocks they think will do well and selling (or avoiding) the stocks they think will do poorly.

Many fund investors would be well served by attempting to mirror the performance of the market to achieve long-term returns. Performance data show that indexes have outperformed the average alpha-seeking funds in the long-run. The data are clear: the S&P 500 index outperformed 90% of all large-cap U.S. actively managed market mutual funds in the 20 years through June 2020, according to Standard & Poor’s S&P Indices Versus Active (SPIVA) research. A similar story has played out in the domestic mid-cap and small-cap markets, where S&P’s indexes outperformed 91% and 86% of actively managed funds, respectively, over the same time period.4

The bottom line is that many investors can opt for index-based strategies to help achieve attractive growth over the long term. While there are of course alpha-seeking equity mutual funds that rack up big returns, history shows that for most investors indexing is anything but average.

Chris Dieterich
Director, ETF Strategist and Commentator
Contributors: Brad Zucker, Sean Murphy, Daniel Prince
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