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SPIVA® Latin America Scorecard Year-End 2017

Persistence of Australian Active Funds: March 2018

SPIVA® Australia Year-End 2017

SPIVA® Latin America Scorecard Year-End 2017

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Phillip Brzenk

Managing Director, Global Head of Multi-Asset Indices

S&P Dow Jones Indices

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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

  • 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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Persistence of Australian Active Funds: March 2018

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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 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® Australia Year-End 2017

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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.
  • 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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