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 experience publishing the report by expanding scorecard coverage into Australia, Canada, Europe, India, South Africa, Latin America, and Japan. While this report will not end the debate on active versus passive investing in Japan, we hope to make a meaningful contribution by examining market segments in which one strategy works better than the other.
- The SPIVA Japan Scorecard reports on the performance of actively managed Japanese mutual funds against their respective benchmark indices over 1-, 3-, 5-, and 10-year investment horizons. In this scorecard, we evaluated returns of more than 780 Japanese large- and mid/small-cap equity funds, along with more than 624 international equity funds investing in global, international, and emerging markets, as well as U.S. equities.
- Domestic Equity Funds: In 2017, the S&P/TOPIX 150 and the S&P Japan MidSmallCap gained 20.1% and and 25.6%, respectively. Over the same period, the majority of large- and mid/small-cap equity funds outperformed their respective benchmarks, with average returns of 26.0% and 42.6%, respectively, which is more favorable than the observations over longer periods.
Over the 10-year horizon, 44.0% and 36.5% of large- and mid/small-cap funds outperformed their benchmarks, respectively, on an absolute basis. The large-cap funds were merged or liquidated at a rate of 31.8%, while the mid/small-cap funds disappeared at a higher rate of 39.0% in the 10-year period.
The mid/small-cap equity funds outperformed the benchmark by 2.3% per year in their equal-weighted return for the 10-year period, but the premium disappeared in their asset-weighted return. This implies alpha from active selection in mid/small-cap stocks was restricted for the larger funds due to the low investment capacity of small-cap stocks. - Foreign Equity Funds: In contrast to the outstanding performance of domestic equity funds, foreign equity funds in Japan delivered disappointing performance compared to their benchmarks in 2017. Despite various foreign equity indices recording double-digit returns for the year, more than 70% of U.S. and emerging equity funds and more than 60% of global and international equity funds underperformed their respective benchmarks.
Over the 10-year period, the vast majority of funds underperformed their respective benchmarks across various foreign fund categories. Less than 5% of the international and emerging equity funds managed to survive and outperform their respective benchmarks on both an absolute and risk-adjusted basis. Furthermore, 38.2% of funds across all foreign equity fund categories were merged or liquidated over the 10-year horizon, with U.S. equity funds disappearing at the fastest rate (44.0%).
Average relative performance of foreign equity funds were mostly in downward trends compared to their benchmarks over the past 10 years. U.S. equity funds recorded the worst relative return, with annualized underperformance of 4.3% and 5.8% on equal- and asset-weighted bases, respectively. Among the U.S. and emerging equity funds, average returns were higher when equally weighted than when asset weighted, indicating smaller funds tended to perform better than the larger funds in these two categories.
