Aren’t actively managed funds more effective at providing superior returns in inefficient markets?

Answer: An efficient market is one in which there are a sufficient number of willing buyers and willing sellers exchanging goods. Thus, an efficient market accurately set prices based on all available sources of information. A common theme that is portrayed by active managers is their ability to outperform a given benchmark in emerging markets, because active managers claim emerging markets are “inefficient” and that informational inefficiencies can be exploited within stock selection and market timing. The data contained in 2023 SPIVA Scorecard, “Report 6: Percentage of International Equity Funds Outperformed by Benchmarks” (pg.21) illustrates this to be a myth – over the trailing 20-year period, over 95% of emerging market funds have underperformed their benchmark. In other words, active managers in emerging markets equities have demonstrated little ability to outperform the market that goes beyond randomness and luck.