SUMMARY
The S&P Indices Versus Active (SPIVA) Latin America Scorecard compares the performance of actively managed mutual funds in Brazil, Chile, and Mexico to their benchmarks over 1-, 3-, 5-, and 10-year periods.
March 2020 presented the largest single-month drawdown in at least 10 years for all categories. The majority of equity active managers in Chile and Mexico failed to outperform, especially over longer periods. The Brazilian large-cap segment did a bit better and active managers were able to beat their benchmark over the one- and three-year periods. However, even this advantage disappeared over longer periods.
Brazil
- After four years of double-digit returns in the Brazilian equity market, the S&P Brazil BMI fell 15.62% during the first half of the year. The COVID-19-driven sell-off had an impact on all Brazilian equity market segments. Large- and mid-small-cap companies presented negative returns of 15.81% and 15.20%, respectively, as measured by the S&P Brazil LargeCap and S&P Brazil MidSmallCap.
- During the first half of 2020, the National Monetary Council cut policy interest rates (Selic) by 225 bps from 4.5% to 2.25%, as of June 30, 2020. In this low rate environment, equity funds in three segments (Brazil Equity Funds, Brazil Large-Cap Funds, and Brazil Mid-/Small-Cap Funds) posted noteworthy performance, despite the overall negative performance of the asset class. Survivorship rates for the one- and three-year horizons increased, compared with the SPIVA Latin America Year-End 2019 Scorecard, especially the Brazil Mid-/Small-Cap Funds and Brazil Equity Funds, which increased their three-year survivorship rate by 8.11% and 2.06%, respectively, (see Report 2 and Exhibit 1).
- Over the one-year period, most active fund managers outperformed their benchmarks in three of the five categories: 57.65% of Brazil Equity Fund managers, 63.16% of the Brazil Large-Cap Fund managers, and 52.59% of the Brazil Corporate Bond Fund managers beat their benchmarks. Active managers from all categories fared poorly relative to their respective benchmarks over the 5- and 10-year periods (see Report 1).
- All categories, except for Brazil Government Bond Funds, showed that over the one-year period, larger funds performed worse than smaller funds. However, over the 10-year horizon, larger funds performed better than smaller funds on an equal-weighted basis (see Report 3) versus an asset-weighted basis (see Report 4).
Chile
- The Chilean equity market continued its negative trend, returning -21.69% over the 12-month period ending in June 2020, as measured by the S&P Chile BMI. Volatility in Chile started before COVID-19 due to the civil unrest starting Oct. 18, 2019.
- The majority of active equity fund managers underperformed the S&P Chile BMI over the 3-, 5-, and 10 year periods, with the median of funds underperforming the benchmark by 1.68%, 2.71%, and 2.34%, respectively (see Report 5). The performance was worse over longer time horizons, with 93.02% and 100.00% of funds underperforming the benchmark over the 5- and 10-year periods, respectively.
- Smaller funds performed relatively better than larger funds over all time horizons on an equalweighted basis (see Report 3) versus an asset-weighted basis (see Report 4).
Mexico
- The S&P/BMV IRT fell 12.81% over the first half of 2020. For the 12-month period ending June 30, 2020, the index was down 10.87%. The majority of active managers underperformed the S&P/BMV IRT over all periods observed. Despite the volatile circumstances over the 12-month period, 64.0% of funds underperformed the benchmark.
- Median fund underperformance was 1.42%, 0.71%, 1.93%, and 1.69% for the 1-, 3-, 5-, and 10- year periods, respectively. The best managers in the category (first quartile) outperformed the S&P/BMV IRT by 96 bps over the 1- and 3-year periods, but could not sustain this outperformance for longer periods, ultimately underperforming by 16 bps over the 10-year horizon.
- The survival rates over the one- and three-year horizons were reduced by 4.04% from the SPIVA Latin America Year-End 2019 Scorecard (see Exhibit 1). The three- and five-year survival rates of Mexico Equity Funds were the highest of Latin America, at 91.49% and 88.64%, respectively.
