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Europe Persistence Scorecard: Year-End 2021

SPIVA Japan Year-End 2022

SPIVA® MENA Year-End 2021

Persistence Scorecard Latin America Year-End 2021

SPIVA® Europe Year-End 2021

Europe Persistence Scorecard: Year-End 2021

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Andrew Cairns

Senior Director, Global Research & Design

S&P Dow Jones Indices

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Andrew Innes

Head of Global Research & Design

S&P Dow Jones Indices

INTRODUCTION

The Europe Persistence Scorecard aims to differentiate skill from luck by examining the ability of active European equity funds to consistently outperform their peers and their benchmark.  This scorecard looks to support the well-known disclaimer that past performance is not indicative of future results and that oftentimes an investor may have better success in selecting a fund at random rather than from a group of top performers.

In this report, we pose two questions: did top funds stay ahead of the pack, and did outperforming funds continue to beat their benchmark?

YEAR-END 2021 HIGHLIGHTS

Pan-European Equity Funds: Looking at the two-year period since the COVID-19 pandemic started, 52% of the top-quartile Europe Equity funds at the start of 2020 were able to remain in the same category by the end of the same year.  By the end of 2021, over 21% of these same starting funds were still in the top quartile.  This figure is far higher than what would be expected through choosing a fund at random (6.25%).  This short-term persistence was not unique to Europe Equity over this period; across all fund categories, at least 6.25% of funds remained in the top quartile for three consecutive years.

While top-quartile funds may have demonstrated a better chance of repeating their relative success over this most recent period, it seems that may not have necessarily translated to outperformance when compared with their benchmarks.  To avoid the risk of drawing conclusions from a single time period, Report 8 analyzes the persistence of outperformance on average over rolling quarters.  Europe Equity funds that had beaten the benchmark in any rolling three-year window over the period analyzed had a 44.4% probability of outperforming in the subsequent year.  The probability of the same funds outperforming for three consecutive years following their initial success dropped to 7.2%.

Report 5 indicates that there may also have been some predictability when it comes to bottom-quartile funds; the report shows that 62% of Europe Equity funds in the bottom quartile either remained there or ceased to exist over the subsequent five years.  In fact, in all fund categories, fourth-quartile active funds were more likely to remain relatively poor performers, with fewer than 10% able to turn their fortunes around and become first-quartile funds.

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SPIVA Japan Year-End 2022

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Maya Beyhan

Senior Director, ESG Specialist, Index Investment Strategy

S&P Dow Jones Indices

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Joseph Nelesen, Ph.D.

Head of Specialists, Index Investment Strategy

S&P Dow Jones Indices

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Davide Di Gioia

Director, Index Investment Strategy

S&P Dow Jones Indices

Since the first publication of the S&P Indices Versus Active (SPIVA) U.S. Scorecard in 2002, S&P Dow Jones Indices has been the de facto scorekeeper of the ongoing active versus passive debate.

The SPIVA Japan Scorecard measures the performance of actively managed funds offered in Japan against their respective benchmarks over various time horizons, covering large-, mid- and small-cap segments, as well as international and global equity funds.

Year-End 2022 Highlights

More than two-thirds (70%) of All Japanese Equity funds underperformed the broad-based S&P Japan 500 over the full-year 2022 period. In all but one of the remaining categories, well over half of funds underperformed their benchmarks. International Equity funds were the sole exception with an underperformance rate of 42% in 2022.

SPIVA Japan: Exhibit 1

  • The S&P/TOPIX 150 posted -3.42% in 2022, and 68% of Japanese Large-Cap funds underperformed the index over the period. This was the worst underperformance rate reported for the large-cap category since December 2018.
  • Results for active managers were better in the International Equity funds category, where 42% of actively managed funds underperformed the S&P Global 1200 Ex-Japan in 2022 (see Exhibits 6, 7 and 8).
  • For Japanese Mid-/Small-Cap funds, 75% underperformed the S&P Japan MidSmallCap, which declined 0.21% in 2022. However, the long-term record of actively managed Japanese Mid-/Small-Cap funds is relatively better, with 50%, 47% and 52% underperforming over the 3-, 5- and 10-year periods, respectively (see Exhibit 5).
  • All Japanese Equity funds generated a relatively range-bound underperformance rate over all our reported time horizons, with underperformance rates versus the S&P Japan 500 ranging between 70% and 82%. In 2022, the S&P Japan 500 ended the year down 2.93%, and 70% of actively managed funds underperformed (see Exhibit 4).
  • After 80% of U.S. Equity funds underperformed over 2021, actively managed Japanese funds invested in U.S. equities reduced their underperformance rate in 2022, with a slight majority of 53% underperforming the S&P 500®’s loss of 6.17% in Japanese yen terms.
  • The S&P Global 1200 posted -4.80% in 2022, and 71% of Global Equity funds failed to beat the benchmark, in many cases underperforming by wide margins. The average total return of the funds in this category was -12.68% on an equal-weighted basis and -22.17% on an asset-weighted basis.
  • While the S&P Emerging BMI declined 5.76% in 2022, 80% of Emerging Equity funds underperformed. As time horizons extended, the percentage of underperforming funds increased to levels surpassing any other category, with 88%, 91% and 100% failing to beat the benchmark over 3-, 5- and 10-year periods, respectively.
  • Taken all together, the data in this report suggest that among the active funds offered in Japan, International Equity managers were relatively more successful when it came to turning opportunities into positive outcomes, but that despite an abundance of opportunities, active funds in all the other fund categories struggled to take advantage.

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SPIVA® MENA Year-End 2021

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Andrew Innes

Head of Global Research & Design

S&P Dow Jones Indices

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Andrew Cairns

Senior Director, Global Research & Design

S&P Dow Jones Indices

S&P Dow Jones Indices has been the de facto scorekeeper of the ongoing active versus passive debate since the first publication of the S&P Indices Versus Active Funds (SPIVA) U.S. Scorecard in 2002.  The SPIVA MENA Scorecard measures the performance of actively managed MENA equity funds denominated in local currencies against the performance of their respective S&P DJI benchmark indices over 1-, 3-, 5-, and 10-year investment horizons.

YEAR-END 2021 HIGHLIGHTS

In 2021, the MENA equity market displayed a remarkable recovery following the returns of 2020, which were heavily affected by the global COVID-19 pandemic. Of the equity benchmarks covered in this scorecard, all four posted returns in excess of 30% for the one-year period. Equity funds followed suit, albeit at a lower level, with each of the corresponding fund categories seeing asset-weighted returns in excess of 20% during the same period. Even funds at the lower end of the spectrum were able to post strong returns—the 25th percentile fund in each category had returns in excess of 25% for the one-year period.

MENA 

  • 85.2% of MENA Equity funds were outperformed by the S&P Pan Arab Composite LargeMidCap Index during the one-year period. 
  • The 75th percentile of MENA Equity funds returned 2.7% less than the benchmark over the one-year period, highlighting that even above average fund managers struggled to keep pace with the benchmark. 
  • On an asset-weighted basis, MENA Equity funds were outperformed by 5.4% and 8.6% over the one-year period by the S&P Pan Arab Composite and S&P Pan Arab Composite LargeMidCap Index, respectively. 
  • Over the one-year period, 74% of MENA Equity funds underperformed the S&P Pan Arab Composite LargeMidCap Index on a risk-adjusted basis. 

GCC

  • GCC Equity fund managers struggled to beat the benchmark during the one-year period. In 2021, 84.6% of funds had a lower return than the S&P GCC Composite, and on an asset-weighted basis, these funds collectively underperformed by a significant 13%. 
  • Over the three-year period, GCC Equity funds underperformed the benchmark by an annualized 5.8%. The underperformance cannot easily be explained away by risk, as over the same period, GCC Equity funds had a lower return-to-volatility ratio, indicating that for each unit of risk, the benchmark had higher returns (see Report 4). 

Saudi Arabia

  • Over the one-year period, 89.5% of Saudi Arabi Equity funds were outperformed by their benchmark, the S&P Saudi Arabia. For the same period, 73.7% of funds underperformed on a risk-adjusted basis. 
  • Despite posting strong one-year fund returns, even the 75th percentile of Saudi Arabia Equity funds trailed the benchmark by 2% by year-end 2021. 
  • Over the 3- and 10-year period, the outlook was slightly better for Saudi Arabia Equity funds; on an asset-weighted basis, they managed to outperform the S&P Saudi Arabia by 2.2% and 1.3% annualized, respectively. In addition, they also posted a better return-to-volatility ratio, showing they were collectively better than the benchmark even when adjusted for risk. 

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Persistence Scorecard Latin America Year-End 2021

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María Sánchez

Director, Sustainability Index Product Management, U.S. Equity Indices

S&P Dow Jones Indices

INTRODUCTION

A key dimension of any active versus passive debate is managers’ ability to consistently deliver above-average returns over multiple periods.  Persistence in performance is one out of many possible ways to differentiate skill from luck.

In this report, we measure the performance persistence of active funds in Brazil, Chile, and Mexico that outperformed their peers over consecutive three- and five-year periods.  We also analyze how their performance ranking transitioned over subsequent periods.

SUMMARY OF RESULTS

Brazil

  • Top performers in Brazilian fixed income fund categories showed better chances than equity categories of remaining in the top quartile over three years (see Report 1).

Latin America Persistence Scorecard Year-End-2021: Exhibit 1

  • Report 2 highlights the inability of top-performing equity fund managers to consistently repeatsuccess in subsequent years. The Brazil Large-Cap Fund category was the least persistent—by the fourth year, none of them remained in the top quartile. Moreover, none of the top performers in the Brazil Equity Fund and Brazil Mid-/Small-Cap Fund categories remained in the top quartile by the fifth year./li>
  • The majority of corporate bond fund managers did not maintain consistent outperformance for five years in a row; only 16% of them did so. Brazil Government Bond Funds did not showbetter results; 3% of them delivered consistent outperformance for five years in a row (see Report 2).
  • The five-year transition matrix (see Report 5) highlights the Brazil Government Bond Fund category. The chance of a winning fund remaining in the top quartile after five one-year periods was the highest among categories, with 66% funds remaining in the first quartile

Chile

  • Report 2 shows the lack of persistence by equity managers in Chile—11% of top-performing funds in the first 12-month period repeated their outperformance after five years.
  • Report 3 shows that 29% of the top-quartile funds in the first period of the three-year transition matrix remained in the top quartile.
  • Funds in the second, third and fourth quartile of the five-year transition matrix were more likely to be liquidated (56%, 33% and 60%, respectively) than to stay or move to lower quartiles (see Report 5).

Mexico

  • As observed in the SPIVA® Latin America Mid-Year 2021 Scorecard, Mexico had a higher rate of fund survivors than Brazil and Chile in the three- and five-year periods. Reports 3, 4, 5 and 6 show that Mexican funds had less chance of being shut down than Brazilian and Chilean funds.
  • The five-year performance persistence test (see Report 2) shows that top-quartile managers had difficulty replicating their outperformance in subsequent years. After one year, just 9% of managers remained in the top quartile, and by the end of year two, none remained.

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SPIVA® Europe Year-End 2021

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Andrew Innes

Head of Global Research & Design

S&P Dow Jones Indices

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Andrew Cairns

Senior Director, Global Research & Design

S&P Dow Jones Indices

S&P Dow Jones Indices has been the de facto scorekeeper of the ongoing active versus passive debate since the first publication of the S&P Indices Versus Active Funds (SPIVA) U.S. Scorecard in 2002.  The SPIVA Europe Scorecard measures the performance of actively managed European equity funds denominated in euro (EUR), British pound sterling (GBP), and other European local currencies against the performance of their respective S&P DJI benchmark indices over 1-, 3-, 5-, and 10-year investment horizons.

YEAR-END 2021 HIGHLIGHTS

In spite of the ongoing COVID-19 pandemic throughout 2021, European equity markets were buoyant, recovering well from the extreme volatility of the previous year. The S&P Europe 350® was up 26.1% in 2021. 

  • Of active euro-denominated Europe Equity funds, 74.8% underperformed the S&P Europe 350 in 2021. On a risk-adjusted basis the same group of funds generally fared no better, with 79.7% and 84.3% underperforming over the 1- and 10-year period respectively. 

  • European regional benchmarks saw double-digit returns across the board, with many returning over 20% for the one-year period. The picture was similar for fund managers, with all categories seeing returns in excess of 10% for the year. 

  • Despite the strong returns, fewer European fund managers beat the benchmark than in the prior year, as evidenced by Report 1c. In each category, there was an increase in the percentage of funds outperformed by their benchmark. 

  • Europe Equity funds saw a 37.4% absolute increase in the percentage of funds outperformed by their benchmark from 2020 to 2021, and the volatility of the benchmark was 27.9% in 2020 and 12.3% in 2021. From this we can surmise that, on average, fund managers in this region may have utilized their skills better during more volatile market conditions than in a comparatively stable environment. However, as SPIVA frequently witnesses, any short-term success typically dissipates as the time horizon increases. For instance, 83.2% of Europe Equity funds underperformed the S&P Europe 350 over the 10-year period. 

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