Managers outperform mid and small cap benchmarks

The SPIVA report from S&P provides a good measure of the quality of alpha generation from long-only equity managers. The numbers are usually not very good. Managers usually underperform the large cap benchmark. Managers typically do better than mid- and small-cap benchmarks, although they still generally fail to beat the corresponding benchmarks. For 2025, equity managers are performing much better than the benchmarks by a much wider margin. 

Why are managers doing better? The simple answer is that it is a better stock-picking environment, yet that does not tell what the characteristics are that are causing this better environment. We argue that the dispersion in the stock market is higher and the cross-correlation is lower in the associated indexes. If there is more equity dispersion, the choices that are made by managers will lead to added performance. The choices improve when there is less correlation between stocks