EXECUTIVE SUMMARY
- This report adds institutional accounts to the mutual funds analyzed in the U.S. SPIVA scorecards. Underperformance among institutional accounts was not meaningfully different from those reported for retail funds.
- We also examine the impact of fees. While fees may negatively affect managers’ performance regardless of the type of investment account, our results show that the impact varies across categories.
- For active equity institutional managers, the one-year performance figures ending December 2017 were positive. Managers in 10 out of 17 categories outperformed their benchmarks, gross-of-fees.
- However, the majority of equity managers in 15 out of 17 categories underperformed their respective benchmarks over the 10-year horizon, gross-of-fees.
- Large-cap value offered the best relative performance over the last 10 years. Almost 58% of active managers in this category beat the benchmark on a gross-of-fees basis, while about 53% of large-cap value institutional accounts outperformed net-of-fees.
- Similar to findings in previous scorecards, underperformance on a net-of-fees basis was nearly always more prevalent among mutual fund managers compared with their institutional counterparts. Only multi-cap growth funds offered an exception.
- For example, over the past 10 years in the large-cap equity space, 89.51% of mutual fund managers and 73.61% of institutional accounts lagged the S&P 500® on a net-of-fees basis. When measured on a gross-of-fees basis, 71.97% of large-cap mutual funds and 62.88% of institutional accounts underperformed.
- The findings in the small-cap space help to dispel the myth that small-cap equity is an inefficient asset class that is best accessed via active management. Over 80% of mutual funds underperformed the S&P SmallCap 600® (net- and gross-of-fees) over the last decade, while 86.80% (72.92%) of institutional accounts underperformed on a net (gross) basis.
- Institutional managers investing in international, international small-cap, and emerging markets fared just as well as, or better than, their domestic counterparts against their respective benchmarks on both fee schedules.
- Results were mixed in fixed income, depending on the market segment and the type of returns used. On a gross-of-fees basis, institutional managers continued to show strength in many categories. Global aggregate, global credit, investment-grade, cash, and mortgagebacked securities (MBS) funds all outperformed their respective benchmarks.
- The impact of fees in the municipal bond market varied significantly between institutional accounts and mutual funds. Fees overwhelmingly affected the performance of mutual fund muni managers; approximately 63% failed to beat the benchmark on a net-of-fees basis compared with 41% on a gross-of-fees basis, constituting a difference of 22%. The corresponding difference for institutional muni managers was 3%.
- The significant performance differential in the muni mutual fund space was not surprising once we examined average fees charged by muni managers across both investment categories. The median fee for muni mutual funds was 0.75% per year, compared with 0.35% for institutional muni accounts.
