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SPIVA^® Europe Year-End 2017

SPIVA^® U.S. Year-End 2017

SPIVA^® Latin America Scorecard Year-End 2017

Persistence of Australian Active Funds: March 2018

SPIVA^® Australia Year-End 2017

SPIVA - Mar 19, 2018

SPIVA^® Europe Year-End 2017

Andrew Innes

Head of 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 2017 HIGHLIGHTS

European equity markets achieved strong, above-average gains in 2017. The S&P Europe 350 ended the year 10.75% higher, as historically low levels of volatility in the markets indicated investors’ confidence in the strength of the continent’s economy and stability of its pro-EU leadership.
Continued global expansion throughout the year supported strong bull rallies across international markets. Despite robust global growth, the weakening of the U.S. dollar throughout the year reduced returns for European investors holding global and U.S. equities. The S&P Global 1200 and the S&P 500^® finished the year up 8.57% and 7.01%, respectively, in euro terms. Meanwhile, the broad emerging equity benchmark recorded an impressive one-year return of 21.12% in euro terms, as measured by the S&P/IFCI.
The majority of active fund categories in Europe underperformed over the past 10 years. Nine out of 23 active fund categories across the European-domiciled equity funds analyzed were able to provide average asset-weighted returns above their corresponding benchmarks over a 10-year period. Furthermore, in those nine outperforming categories, less than one-third of the funds beat the benchmark. This indicates that a minority of funds were responsible for each group’s success.
U.S. and Emerging Market Equity funds domiciled in Europe remained among the region’s worst-performing active fund categories. Euro- and pound sterling-denominated funds investing solely in U.S. equities provided average returns that were below their local currency S&P 500 benchmark for all periods analyzed. Less than one-third of these funds outperformed in 2017 and less than one-tenth outperformed since 2008.
Likewise, European funds managing global emerging equities failed to deliver average returns above the benchmark over any period analyzed. Interestingly, this finding is in stark contrast to the widely held belief that inefficient markets provide the best opportunities for stock pickers to outperform.
One-year performance of active pan-European equity funds (euro-denominated) relative to the S&P Europe 350 was fairly evenly split. In 2017, 53% of funds in the category outperformed the benchmark. Over the 10-year period, 15% of funds in the same category beat the S&P Europe 350. Of the funds that were in existence in the category at the start of 2008, 45% survived to the end of 2017.
The average asset-weighted performance for the fund category was 11.97% for the year, compared with a return of 10.75% for the benchmark. Over the 10–year period, the equivalent average return figure was lower than that of the benchmark, at 3.37% and 4.08%, respectively.
In contrast to pan-European equities, only 26% of actively managed funds investing solely in Eurozone equities beat the S&P Eurozone BMI in 2017, dropping to 12% over the 10–year period. The average asset-weighted performance for the group was consistently lower than the S&P Eurozone BMI by one percentage point on an annualized basis over all periods analyzed.
Single-country fund categories across Europe had mixed results in 2017. A majority of funds in Italy, Swtizerland, Germany, the UK, and Sweden outperformed over the one-year period. The same categories also provided average asset-weighted returns above their corresponding benchmarks. However, the majority of funds investing in equities in Denmark, Poland, The Netherlands, Spain, or France were beaten by their corresponding benchmarks in 2017.
Only Italy maintained a majority of active funds outperforming over the one-, three-, and five- year periods. In no fund category did a majority of funds outperform over the 10-year period.
UK Small-Cap Equity funds performed markedly better than their UK Large-/Mid-Cap counterparts in 2017. Of actively managed UK Small-Cap Equity funds, 80% outperformed their benchmark for the year, compared with 46% for the UK Large-/Mid-Cap Equity fund category. Average asset-weighted returns for these UK small-cap funds exceeded the S&P United Kingdom Small-Cap by nine percentage points for the year.
The recent success of these small-cap funds over large-cap funds in the UK was in contrast to the long-term picture; the reverse was true over the 10-year period. In both categories, however, 10- year outperformance was achieved by less than one-quarter of the funds.

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SPIVA - Mar 15, 2018

SPIVA^® U.S. Year-End 2017

SUMMARY

The U.S. equity market ended 2017 on a strong positive note, with the S&P 500^® posting 21.83% over the 12-month period as of Dec. 31, 2017. The S&P MidCap 400^® and S&P SmallCap 600^® followed, reporting gains of 16.24% and 13.23%, respectively.
During the one-year period, the percentage of managers outperforming their respective benchmarks noticeably increased in categories like Mid-Cap Growth and Small-Cap Growth Funds, compared to results from six months prior. Over the one-year period, 63.08% of large-cap managers, 44.41% of mid-cap managers, and 47.70% of small-cap managers underperformed the S&P 500, the S&P MidCap 400, and the S&P SmallCap 600, respectively.
While results over the short term were favorable, the majority of active equity funds underperformed over the longer-term investment horizons. Over the five-year period, 84.23% of large-cap managers, 85.06% of mid-cap managers, and 91.17% of small-cap managers lagged their respective benchmarks.
Similarly, over the 15-year investment horizon, 92.33% of large-cap managers, 94.81% of mid-cap managers, and 95.73% of small-cap managers failed to outperform on a relative basis.
Over the 12-month period ending Dec. 31, 2017, growth managers across all three market cap ranges fared better than their core and value counterparts. The results highlight the cyclicality of style box investing, as core managers outperformed 12 months prior with the exception of small caps, while value managers outperformed core and growth 18 months prior.

Across nine U.S. style categories, large-cap value managers was the best performing category over the10-year and 15-year horizons, with 29.56% and 14.29% of managers outperforming the benchmark, the S&P 500 Value.
The headline international equity and emerging market equity indices began a strong rally in November 2016 that continued through 2017. Over the one-year period ending Dec. 31, 2017, the S&P/IFCI Composite posted 37.89%; the S&P Developed Ex-U.S. Small Cap, S&P International 700, and S&P Global 1200 reported 32.37%, 26.64%, and 23.84%, respectively, over the same period.
During the one-year period, with the exception of actively managed international small-cap equity funds, the majority of managers investing in global, international, and emerging market funds underperformed their respective benchmarks.
Over the 3-, 5-, 10-, and 15-year investment horizons, managers across all international equity categories underperformed their benchmarks. Furthermore, the longer the time horizon, in general, the more funds underperformed.
The U.S. Federal Reserve increased rates three times during 2017. However, the 10-Year U.S. Treasury yield has not moved significantly off of its year-end 2016 levels, resulting in a flatter yield curve. During the one-year period ending Dec. 31, 2017, the majority of active fixed income managers investing in long-term government and corporate credit bonds underperformed their benchmarks, marking a shift from six months prior when they vastly outperformed.
In contrast, funds investing in short- and intermediate-term government and credit bonds outperformed their benchmarks.
Across all time periods studied, high-yield managers struggled to outperform their benchmark. During the one-year period, over 80.95% of actively managed high-yield bonds failed to deliver higher returns than the benchmark’s 7.50% return.
The majority of municipal funds outperformed over the 12-month period, despite having mixed results over the three- and five-year investment horizons. However, over the 10- and 15-year periods, most muni funds underperformed their benchmarks. While these funds underperformed over the long term, it should be noted that municipal categories have some of the best survivorship statistics.
Funds disappear at a meaningful rate. Over the 15-year period, 58% of domestic equity funds, 55% of international equity funds, and an average of 48% of all fixed income funds were merged or liquidated. This finding highlights the importance of addressing survivorship bias in mutual fund analysis.

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SPIVA - Mar 13, 2018

SPIVA^® Latin America Scorecard Year-End 2017

Phillip Brzenk

Managing Director, Global Head of Multi-Asset Indices

S&P Dow Jones Indices

SUMMARY

The S&P Indices Versus Active (SPIVA) Latin America Scorecard reports on the performance of actively managed mutual funds in Brazil, Chile, and Mexico against their respective benchmarks over one-, three-, and five-year investment horizons.

Brazil

The Brazilian equity market saw robust returns in 2017, with the S&P Brazil BMI returning over 28% for the year. Smaller companies performed relatively better than their larger counterparts; the S&P Brazil MidSmallCap increased nearly 37%, while the S&P Brazil LargeCap rose approximately 25%.
The Brazilian fixed income market showed stable returns in 2017, as corporate bonds (as measured by the Anbima Debentures Index) were up 11.7% and government bonds (as measured by the Anbima Market Index) were up 12.8%.
The outperformance results show that the majority of fund managers underperformed their respective category benchmarks in the longer-term periods of three and five years. Over the short-term horizon, broad equities and both fixed income categories saw the majority of managers underperform. For the size segment equity categories (Brazil Large-Cap Funds and Brazil Mid-/Small-Cap Funds), managers fared relatively better; 53% of managers within those categories outperformed their respective benchmarks for the one-year period.

Chile

Chilean equities ended 2017 strong, with an increase of over 33% for the year. This marks the highest calendar year return for the country since 2010.
Active equity managers in Chile continued to underperform over short- and long-term periods. Nearly 76% of managers underperformed the S&P Chile BMI in 2017, while 93% underperformed the benchmark over the five-year period.

Mexico

The S&P/BMV IRT, the total return version of the S&P/BMV IPC, is being introduced as the category benchmark for Mexico equity funds starting with this year-end 2017 report. The S&P/BMV IPC is widely used by local Mexican asset managers as the de facto benchmark, hence the call to change in order to ensure that the SPIVA report is as relevant as possible for the industry. For this year-end 2017 report, active funds were compared against both benchmarks and were reported separately in the relevant reports. For future reports, the S&P Mexico BMI will no longer be included.
While the market was slightly negative (-0.24%) for the last six months of the year, it was still up by double digits for 2017, as the S&P/BMV IRT returned 10.49%.
Compared to the mid-year 2017 report, a smaller percentage of active fund managers were able to outperform the benchmark for year-end 2017. Just 8% of managers outperformed the S&P/BMV IRT in 2017—the same result occurred when comparing the managers to the S&P Mexico BMI. Over the five-year period, 74% of managers underperformed the S&P/BMV IRT.
High survivorship of Mexico equity funds continued, as all active funds survived over the one-year period and 91% survived over the five-year period.

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SPIVA - Mar 12, 2018

Persistence of Australian Active Funds: March 2018

EXECUTIVE SUMMARY

While comparing active funds against a benchmark index is a typical practice used to evaluate their performance, persistence is an additional test that reveals fund managers’ skills in different market environments.

In this report, we measure the performance persistence of active funds that outperformed their peers and benchmarks over consecutive threeand five-year periods, and we analyze their transition matrices over subsequent periods.
A minority of Australian high-performing funds persisted in outperforming their respective benchmarks or consistently stayed in their respective top quartiles for three consecutive years, and even fewer maintained these traits consistently for five consecutive years.
Over two successive three- and five-year periods, the majority of outperforming funds failed to beat their respective benchmarks, and most funds in the top quartile did not remain there consistently.
Only 1.1% of the high-performing funds in 2013 maintained a topquartile rank over the subsequent four consecutive years, and only 1.0% of funds consistently beat their benchmarks over five consecutive years across all fund categories.
The Australian Bonds category had the lowest turnover in the top quartile, while no funds in the Australian Equity General, International Equity General, or Australian Equity A-REIT fund categories managed to stay in the top quartile over a consecutive five-year period.
Apart from the Australian Equity General category, not a single fund from the other categories managed to outperform the benchmark consistently over five consecutive years.
Overall, results from various evaluation matrices suggest weak performance persistence for top-performing funds in Australia across three- and five-year periods.

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SPIVA - Mar 12, 2018

SPIVA^® Australia Year-End 2017

SUMMARY

S&P Dow Jones Indices has been the de facto scorekeeper of the ongoing active versus passive debate since the first publication of the SPIVA U.S. Scorecard in 2002. Over the years, we have built on our 16 years of experience publishing the report by expanding scorecard coverage into Australia, Canada, Europe, India, Japan, Latin America, and South Africa.
While the report will not end the debate on active versus passive investing in Australia, we hope to make a meaningful contribution by examining market segments in which one strategy works better than the other.
The SPIVA Australia Scorecard reports on the performance of actively managed Australian mutual funds against their respective benchmark indices over 1-, 3-, 5-, 10-, and now 15-year investment horizons. In this scorecard, we evaluated returns of more than 786 Australian equity funds (large, mid, and small cap, as well as A-REIT), 378 international equity funds, and 109 Australian bond funds.
In 2017, the majority of Australian funds in most categories underperformed their respective benchmarks, apart from the Australian A-REIT category. There is no consistent trend in the yearly active versus index figures, but we have consistently observed that the majority of Australian active funds in most categories fail to beat the comparable benchmark indices over long-term horizons.
Over the 10-year period ending Dec. 29, 2017, more than 85% of international equity and Australian bond funds and more than 70% of Australian general equity and A-REIT funds underperformed their respective benchmarks on an absolute basis. However, only 40% of Australian small-cap funds lagged their benchmarks. Observations based on risk-adjusted returns were similar for most categories, with the result for the Australian bond funds being slightly more favorable.

Australian General Equity Funds: Over the one-year period, the S&P/ASX 200 recorded a gain of 11.8%, while Australian large-cap equity funds posted a similar average return, with 59% of funds underperforming the S&P/ASX 200. Over the 3-, 5-, and 15-year periods, 67%, 63%, and 77% of funds in this category underperformed the benchmark, respectively.
Australian Mid- and Small-Cap Equity Funds: In 2017, the S&P/ASX Mid-Small recorded a return of 21.2%, while Australian mid- and small-cap funds gained a smaller average return of 17.9%. Over the one- and three-year periods, 74% and 75% of funds in this category underperformed the benchmark, respectively, which was higher than the observations over the longer measured periods.
International Equity Funds: The S&P Developed Ex-Australia LargeMidCap gained 14.5% in 2017 and international equity funds recorded a stronger return of 15.4%, despite 53% of funds underperforming the benchmark. This was in contrast to the observations for the longer periods (3-, 5-, 10-, and 15-year) when more than 80% of funds in this category lagged the benchmark.
Australian Bond Funds: The Australian bond funds gained 3.2% in 2017, with 69% of them underperforming the S&P/ASX Australian Fixed Interest 0+ Index, which posted an annual return of 3.6%. Over the 5- and 10-year periods, 85% of Australian bond funds underperformed the benchmark. Noticeably, the relative performance of Australian bond funds appeared more favorable on a risk-adjusted basis, with 57%, 67%, and 70% of funds lagging the benchmark over the 1-, 5-, and 10-year periods.
Australian A-REIT Funds: The S&P/ASX 200 A-REIT gained 5.7% in 2017 and the Australian AREIT funds delivered a higher average return of 6.8% over the same period. For the one-year period, 44% of funds in this category underperformed the benchmark, while 66%, 84%, and 78% of funds lagged the benchmark over the 3-, 5-, and 15-year horizons, respectively.
Fund Survivorship: In 2017, 6.2% of Australian funds from all measured categories were merged or liquidated, with Australian large-cap funds disappearing at the fastest rate and Australian bond funds recording a 100% survival rate. However, over the 15-year horizon, Australian bond funds had the lowest survival rate of 33%, while the Australian mid- and small-cap funds had the highest rate of 59%. Funds across all categories had an overall survivorship rate of 51% over the 15-year period.
Equal-Weighted Average Fund Returns: In 2017, funds in the international equity and Australian A-REIT categories delivered equal-weighted average returns that exceeded their respective benchmarks. In contrast, Australian mid- and small-cap equity funds underperformed the benchmark by 3.3% for the one-year period. Meanwhile, over the 15-year period, Australian midand small-cap equity funds recorded average excess returns of 2.9% per year, while international equity funds lagged the benchmark by 1.2% per year.
Asset-Weighted Average Fund Returns: Aside from Australian mid- and small-cap funds, assetweighted average returns for all fund categories exceeded their respective equal-weighted average returns across all measured periods, indicating larger funds delivered higher returns than smaller funds in these categories.

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