Relative Return
An investment's performance measured against a benchmark index or peer group, rather than as an absolute gain or loss.
What is Relative Return?
Relative return compares an investment's performance to a reference benchmark — commonly an index such as the S&P 500, the Bloomberg Aggregate Bond Index, or a relevant sector index. A fund returning 12% when the benchmark returns 10% has a relative return of +2 percentage points, sometimes called alpha. Relative return is the primary metric used to evaluate active fund managers, since it isolates skill from market direction. A manager who returns 5% in a year when the market falls 10% has added significant relative value even though the absolute return was modest. Persistent positive relative return is difficult to achieve and is the core goal of active investment management.
Example
The SPIVA (S&P Indices Versus Active) scorecard consistently shows that over 15-year periods, roughly 90% of US large-cap active equity funds underperform the S&P 500 on a relative basis after fees. This finding is a major driver behind the shift to passive index investing, as the majority of active managers fail to deliver consistent positive relative returns over long horizons.
Source: S&P SPIVA US Scorecard