U.S. equities have been whipsawed by tariff fears in the past couple of months, and particularly over the past week, with sharp double-digit swings for the S&P 500^®. The index’s slide into correction territory has coincided with a rise in implied volatility, with VIX^® rising briefly above the 50-point handle. In environments characterized by both market declines and high volatility, we typically hear that active management can have an advantage over index funds.

While the current macro environment is unusual, to say the least, we can look to history for a better understanding of active manager performance trends. We start by analyzing the 24-year history of our SPIVA^® U.S. Scorecard, where we measure the performance of active managers versus their appropriate benchmarks. Exhibit 1 shows that 5 out of these 24 years were characterized by market declines. Notably, all five years coincided with majority underperformance for large-cap funds, ranging from 51% in 2022 to 68% in 2002.

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But how has the performance of active managers during market declines compared relative to their performance during market gains? A simple way to analyze the conditions for stock selection is to measure the percentage of constituents that beat the benchmark. Exhibit 2 illustrates that, on average, 56% of member stocks beat The 500™ during the five years when the index declined, outpacing the 46% during the 19 years when the market posted gains. This makes sense, as down markets can provide an easier hurdle for stocks to beat.

Despite this advantage, 61% of large-cap funds underperformed The 500 during down markets, only slightly better than the 65% underperformance during up markets and the 64% average across all 24 years.

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As well as market downturns, the other potentially advantageous element for active managers to examine is the rise in volatility and specifically dispersion, which measures how differently stocks are performing relative to each other. The value of stock-selection skill rises when dispersion is high, which could mean greater opportunities for stock pickers to outperform.

In Exhibit 3, we divided the years in our SPIVA database into low and high dispersion periods, defined as when the benchmark S&P 500’s dispersion was below the historical 25^th percentile and above the 75^th percentile, respectively. As expected, large-cap managers generally fared better in high dispersion periods, with 56% underperforming the S&P 500, lower than the 67% during low dispersion periods. Still, high dispersion regimes were characterized by majority underperformance.

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In addition to analyzing historical dispersion environments, we can also look to implied dispersion to understand the potential for future opportunities for stock selection. We observe in Exhibit 4 that the Cboe S&P 500 Dispersion Index (DSPX), which uses listed options to measures the expectations for dispersion over the next 30 calendar days, reached an all-time live high of 46.5 on April 10, 2025, and is currently just below the 40-point handle. This level means that the market expects that the spread of annualized S&P 500 stock returns will have a standard deviation of close to 40% next month, which could signify plentiful future potential prospects for active stock selection.

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History tells us that although active managers tended to fare better during market declines and high dispersion periods, majority underperformance prevailed regardless of market conditions. The future dispersion environment may be fortuitous, but the question of the hour is whether stock pickers will be able to shine during these unique circumstances. Thanks to our SPIVA Scorecards, we will be watching.

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