IN THIS LIST

SPIVA® Latin America Scorecard Mid-Year 2018

SPIVA® Australia Mid-Year 2018

Persistence of Australian Active Funds: September 2018

U.S. Persistence Scorecard: March 2018

Risk-Adjusted SPIVA® Scorecard Year-End 2017

SPIVA® Latin America Scorecard Mid-Year 2018

Contributor Image
Phillip Brzenk

Managing Director, Global Head of Multi-Asset Indices

S&P Dow Jones Indices

Contributor Image
Antonio de Azpiazu

Managing Director, Head of Commercial Europe and Latin America

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

  • A reversal from the strong returns observed in 2017, the Brazilian equity market declined in the first half of 2018, as the S&P Brazil BMI returned -4.61%. Large cap companies (-5.32%, as measured by the S&P Brazil LargeCap) performed relatively worse than mid- and small-cap companies (-3.19%, as measured by the S&P Brazil MidSmallCap).
  • With the continued moderation of inflation in Brazil in late 2017 and early 2018, corporate and government bonds grew at a slower pace than in previous years. Corporate bonds (as measured by the Anbima Debentures Index) were up 8.51% and government bonds (as measured by the Anbima Market Index) were up 8.47% over the oneyear period.
  • Four of the five categories saw the majority of managers underperforming for the one-year period ending in June. The one exception was the large-cap equities group, where a slight majority of managers outperformed the S&P Brazil LargeCap. For this category, the asset-weighted average fund return (14.94%) was higher than the equal-weighted average fund return (14.34%); this leads to the notion that larger fund managers (by net assets) performed relatively better than smaller fund managers.
  • Across all categories, the majority of fund managers underperformed their respective category benchmarks for the three- and five-year horizons.

Chile

  • Following the trend of other Latin American markets in 2018, the Chilean equity market fell in the first half of the year, by -4.39%.
  • For the one-year period, 71% of active fund managers in Chile underperformed the S&P Chile BMI. Even fewer managers were successful in outperforming over longer periods; 14% outperformed over the last three years and 9% outperformed over the last five years.

Mexico

  • The S&P/BMV IRT declined 2.25% in the first half of 2018, with a similar return (-2.48%) for the one-year period.
  • Approximately 44% of equity fund managers were able to beat the benchmark (S&P/BMV IRT) in the last year. As we’ve seen in prior SPIVA scorecards, the success rate declined for longer time periods—18% of managers outperformed for the three-year period, while 17% outperformed for the five-year period.
  • For the five-year period, the median (second quartile) fund had an annualized return of 3.48%, lagging the S&P/BMV IRT by 1.74% on an annualized basis.

pdf-icon PD F Download Full Article

SPIVA® Australia Mid-Year 2018

Contributor Image
Priscilla Luk

Managing Director, Global Research & Design, APAC

S&P Dow Jones Indices

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.
  • 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 15-year investment horizons. 1 In this scorecard, we evaluated returns of more than 849 Australian equity funds (large, mid, and small cap, as well as A-REIT), 425 international equity funds, and 116 Australian bond funds.
  • In the one-year period ending June 30, 2018, the majority of Australian funds in most categories underperformed their respective benchmarks, apart from the Australian mid- and small-cap category. However, the yearly active versus index figures varied across market cycles without consistent trends.
  • We have consistently observed that the majority of Australian active funds in most categories fail to beat their comparable benchmark indices over the long term. Over the 10-year period ending June 30, 2018, almost 90% of international equity funds and more than 70% of Australian equity general, Australian bond, and A-REIT funds underperformed their respective benchmarks on an absolute basis. In contrast, more than half of Australian small-cap funds beat their benchmarks.
  • Observations based on risk-adjusted returns were similar for most categories, with the result for the Australian bond and A-REIT funds being more favorable across various measured periods.

  • Australian Equity General Funds: Over the one-year period ending June 30, 2018, the S&P/ASX 200 gained 13.0%, while Australian large-cap equity funds recorded a return of 12.3%, with 57.6% of funds underperforming the S&P/ASX 200. Over the 5-, 10-, and 15-year periods, 68.7%, 71.4%, and 80.2% of funds in this category failed to beat the S&P/ASX 200, respectively.
  • Australian Equity Mid- and Small-Cap Funds: As of June 30, 2018, the S&P/ASX Mid-Small Index recorded a 12-month return of 18.8%, while Australian mid- and small-cap funds gained a higher average return of 20.8%, with 44.9% of funds underperforming the benchmark. Over the three- and five-year periods, more than 70% of funds in this category underperformed the benchmark, which was higher than the observations over the longer measured periods.
  • International Equity General Funds: As of June 30, 2018, this fund category had the highest portion of funds underperforming the benchmark, the S&P Developed Ex-Australia LargeMidCap, across the majority of the measured periods. Over the one-year period, the international equity general funds posted a smaller average return (14.1%) than the benchmark’s return (15.8%), with more than 70% of funds underperforming the benchmark.
  • Australian Bond Funds: The Australian bond funds gained 2.4% over the 12-month period ending June 30, 2018, with 69.1% of them lagging the S&P/ASX Australian Fixed Interest 0+ Index. The majority of funds in this category delivered lower-than-benchmark returns across different measured periods, but their risk-adjusted performance appeared more favorable, with 52.7%, 66.0%, and 69.0% of funds lagging the benchmark over the 1-, 5-, and 10-year periods, respectively, on a riskadjusted basis.
  • Australian Equity A-REIT Funds: As of June 30, 2018, the vast majority of Australian A-REIT funds (91.3%) underperformed the S&P/ASX 200 A-REIT over the one-year period. The S&P/ASX 200 A-REIT gained 13.0%, while funds in this category delivered a lower average return of 11.2% over the same period. Observations based on risk-adjusted returns were less unfavorable for the A-REIT funds, with 78.3% of funds underperforming the benchmark.
  • Fund Survivorship: In the one-year period ending June 30, 2018, 3.4% of Australian funds from all measured categories were merged or liquidated, with Australian mid- and small-cap funds disappearing at the fastest rate and Australian bond and A-REIT funds recording a 100% survival rate. Over the longer periods, less than 60% and 50% of funds across all categories survived for the 10- and 15-year periods, respectively, with Australian bond and international equity funds having the lowest survival rates.
  • Equal-Weighted Average Fund Returns: Apart from the Australian mid- and small-cap funds, equal-weighted average returns of all fund categories were below their respective benchmark returns for the one-year period ending June 30, 2018. Observations over the 10-year periods were similar, as Australian mid- and small-cap equity funds recorded average excess returns of 4.4% per year, while international equity funds lagged the benchmark by 1.8% per year.
  • Asset-Weighted Average Fund Returns: Aside from Australian mid- and small-cap funds, the asset-weighted average returns were broadly higher than their respective equal-weighted average returns for all fund categories, which indicates that larger funds tended to perform better than smaller funds in these categories.

pdf-icon PD F Download Full Article

Persistence of Australian Active Funds: September 2018

Contributor Image
Priscilla Luk

Managing Director, Global Research & Design, APAC

S&P Dow Jones Indices

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 the five-year period.
  • Out of the top-performing funds in the 12-month period ending June 2014, only 2.2% persistently maintained a top quartile rank, and 4.0% consistently beat their benchmarks in the following four 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.
  • Out of the 144 Australian funds that ranked in their respective top quartile in the five-year period ending June 2013, less than half of them remained in the top two quartiles, and 15.3% were liquidated or merged in the subsequent five-year period.
  • Out of the 303 Australian funds that outperformed their respective benchmark in the five-year period ending June 2013, only 27.7% continued to outperformed their respective benchmark in the following five-year period.
  • Overall, results from various evaluation matrices suggest weak performance persistence in top-performing funds in Australia across the three- and five-year periods, with Australian Bond funds tending to have the strongest performance persistence among all the categories.

pdf-icon PD F Download Full Article

U.S. Persistence Scorecard: March 2018

SUMMARY OF RESULTS

  • When it comes to the active versus passive debate, one of the key measurements of successful active management lies in the ability of a manager or a strategy to deliver above-average returns consistently over multiple periods. Demonstrating the ability to outperform peers repeatedly is the one way to differentiate a manager’s luck from skill.
  • According to the S&P Persistence Scorecard, relatively few funds can consistently stay at the top. Out of 557 domestic equity funds that were in the top quartile as of March 2016, only 2.33% managed to stay in the top quartile at the end of March 2018. Furthermore, 0.93% of the large-cap funds, no mid-cap funds, and 3.85% of the small-cap funds remained in the top quartile.
  • For the three-year period that ended in March 2018, persistence figures for funds in the top half were also unfavorable. Over three consecutive 12-month periods, 21.96% of large-cap funds, 7.59% of mid-cap funds, and 13.46% of small-cap funds maintained a top-half ranking.
  • An inverse relationship generally exists between the measurement time horizon and the ability of top-performing funds to maintain their status. It is worth noting that only 0.45% of large-cap and no midcap or small-cap funds managed to remain in the top quartile at the end of the five-year measurement period. Furthermore, no mid-cap or small-cap funds were able to retain their status as of the end of the fourth 12-month period. This figure paints a negative picture regarding long-term persistence in mutual fund returns.
  • Similarly, only 11.41% of large-cap funds, 1.2% of mid-cap funds, and 3.57% of small-cap funds maintained top-half performance over five consecutive 12-month periods. Random expectations would suggest a repeat rate of 6.25%.

  • The transition matrices are designed to track the performance of top- and bottom-quintile performers over subsequent time periods. The data show a stronger likelihood for the bestperforming funds to become the worst-performing funds than vice versa. Of 364 funds that were in the bottom quartile, 17.03% moved to the top quartile over the five-year horizon, while 25.82% of the 364 funds that were in the top quartile moved to the bottom quartile during the same period.
  • Our research also suggests that there is consistency in the death rate of bottom-quartile funds. Across all market cap categories and all periods studied, fourth-quartile funds had a much higher rate of being merged or liquidated. The five-year transition matrix shows that 33.83% of large-cap funds, 33.96% of mid-cap funds, and 29.07% of small-cap funds in the fourth quartile disappeared.
  • Compared with domestic equity funds, there was a higher level of performance persistence among the top-quartile fixed income funds over the three-year period ending March 2018. Government Intermediate, Global Income, and Emerging Markets funds were the only categories in which the results showed no performance persistence.
  • Over the five-year measurement horizon, the results show a lack of persistence among nearly all the top-quartile fixed income categories, with a few exceptions. Funds investing in long-term government and investment-grade bonds, short-term investment-grade bonds, mortgagebacked securities, general municipal debt, and California municipal debt were the only groups in which a noticeable level of persistence was observed.

pdf-icon PD F Download Full Article

Risk-Adjusted SPIVA® Scorecard Year-End 2017

EXECUTIVE SUMMARY

  • Modern portfolio theory (MPT) states that expectations of returns must be accompanied by risk or variation around the expected return. It assumes that higher risk should be compensated, on average, by higher returns.
  • Beyond relative performance of funds, market participants are also interested in the risks taken to achieve those returns. This motivated us to examine the performance of actively managed funds on a riskadjusted basis.
  • Critiques of passive investing often argue that indices are not risk managed, unlike active management. Therefore, our study aims to understand whether actively managed funds are able to generate higher risk-adjusted returns than their corresponding benchmarks.
  • We used the standard deviation of monthly returns, over a given period, to define and measure risk. We used net of fees and gross of fees returns in our calculation of risk. Our goal was to establish whether risk or fees affected managers’ relative performance versus the benchmark.
  • We used the return/risk ratio to evaluate managers’ risk-adjusted performance. To make our comparison relevant, we also adjusted the returns of the benchmarks used in our analysis by their volatility.
  • Our analysis showed that on a risk-adjusted basis, the majority of actively managed domestic and international equity funds underperformed the benchmarks when using net of fees returns. However, when gross of fees returns were used, managers in certain categories outperformed the benchmarks.
  • In fixed income, we found that actively managed bond funds outperformed their benchmarks when gross of fees returns were used. The results highlighted that fees negatively affected active bond funds’ performance.


    • INTRODUCTION

    MPT, introduced by Harry Markowitz (1952), Jack Treynor (1962), William Sharpe (1964), and John Lintner (1965), states that the expectation of returns must be accompanied by risk—the variation (or volatility) around the expected return. MPT assumes that higher risk should be compensated, on average, by higher returns.

    We applied the same principle to active managers’ performance. Since its launch in 2002, the SPIVA Scorecard has looked at the relative performance of actively managed equity and fixed income funds against their respective benchmarks across different regions. Beyond the relative performance of funds, market participants are also interested in the risks taken to achieve those returns. This motivated us to examine the performance of actively managed funds on a risk-adjusted basis.

    Moreover, critiques of passive investing often argue that indices are not risk-managed, unlike active management. Previous research by S&P Dow Jones Indices revealed that active funds typically had higher risk than comparable benchmarks and relative fund volatility tended to be persistent (Edwards et al. 2016).

    Therefore, our study seeks to establish whether actively managed funds are able to generate higher risk-adjusted returns than their corresponding benchmarks over a long-term investment horizon.

    As with any analysis involving risk-adjusted performance, it is important to define risk and how to measure it. In our analysis, we used the standard deviation of monthly returns over a given period to define and measure risk. The monthly standard deviation was annualized by multiplying it by the square root of 12.

    The risk/return ratio looks at the relationship and the trade-off between risk and return. All else equal, a fund with a higher ratio is preferable since it delivers a higher return per unit of risk taken. To make our comparison relevant, we also adjusted the returns of the benchmarks used in our analysis by their volatility.

    We acknowledge that there are other measures of risk that may be of interest to market participants, such as the downside variance or Sortino ratio, which may align better with different views on risk. Those ratios are suitable for strategies with positively skewed or negatively skewed returns, such as options-based or CTA strategies (Rollinger and Hoffman 2013). Since our study universe comprised long-only, 40 Act mutual funds, and for purposes of simplicity and comprehensiveness, we chose the Sharpe ratio to represent risk-adjusted returns.

    The selection and the appropriateness of benchmarks were highly critical in evaluating risk-adjusted performance. The SPIVA U.S. Scorecard ensures that the benchmarks used in the analysis are determined based on managers’ investment styles. For example, large-cap value funds are compared against the S&P 500® Value, rather than S&P 500. As such, we are confident that the benchmarks used in our study reflect the risk profiles and the characteristics of the corresponding managers’ investments. 

    pdf-icon PD F Download Full Article
Processing ...