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SPIVA® Latin America Scorecard Year-End 2018

SPIVA® Japan Year-End 2018

SPIVA® U.S. Year-End 2018

SPIVA® Australia Year-End 2018

SPIVA® Institutional Scorecard 2017

SPIVA® Latin America Scorecard Year-End 2018

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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

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María Sánchez

Director, Sustainability Index Product Management, U.S. Equity Indices

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 category benchmarks over different time horizons. Starting with this report, we expand the analysis to include the 10-year investment horizon in addition to the previously reported 1-, 3-, and 5-year investment horizons. The expansion to include a 10-year horizon enables us to look at how funds perform over full market cycles, capturing both bear and bull markets.

Brazil

  • The Brazilian equity market heated up in the second half of 2018, rising 21.4% from July to December (as measured by the S&P Brazil BMI). The market returned 15.8% for the year, marking the third straight year of double-digit gains. Mid- and small-cap companies (as measured by the S&P Brazil MidSmallCap) led the way, returning 17.5%, while largecap companies (as measured by the S&P Brazil LargeCap) returned 15.1%.
  • With the continued stabilization of inflation in 2018, returns for fixed income securities were lower than previous years. Corporate bonds (as measured by the Anbima Debentures Index) were up 9.1% and government bonds (as measured by the Anbima Market Index) gained 10.1%.
  • 2018 saw the majority of active fund managers underperforming the category benchmark in four of the five categories. As we saw in the mid-year 2018 report, slightly more large-cap active managers (51.1%) were able to beat the benchmark than underperformed it. For this category, the one-year asset-weighted average fund return (17.1%) was higher than the equalweighted average fund return (15.1%). In general, this means that managers with more assets performed better than funds with smaller assets.
  • Managers had little success when their performance was measured over the long term, as the majority of funds underperformed their respective benchmarks for the 3-, 5-, and 10-year horizons for all 5 categories.

Chile

  • The Chilean equity market fell by nearly 8% in 2018 as measured by the S&P Chile BMI, a sharp reversal from the strong gains (33%) in 2017.
  • In the downturn, the majority (60%) of active fund managers underperformed the S&P Chile BMI. This is an improvement from the numbers seen in 2017, when over 75% of managers underperformed that year; however, with advocates of active management saying that managers have the ability to weather the storm of down markets better than passive benchmarks, the numbers paint a different picture for the majority.
  • The majority of managers also underperformed over the 3-, 5-, and 10-year investment horizons. The 10-year horizon ending in 2018 saw cycles of bull and bear markets, with 4 calendar years of negative equity returns and 6 years of positive returns. Over the same period, over 97% of managers underperformed the benchmark by an equal-weighted average of nearly 2% per year.

Mexico

  • Uncertainty revolving around the new presidential regime in late 2018 affected Mexico’s equity market returns, as the S&P/BMV IRT fell 11.6% in the second half of 2018, which resulted in a fullyear return of -13.6%.
  • In 2018, 58.2% of active equity fund managers beat the benchmark, as the equal-weighted average fund return was 1.2% higher than the benchmark return.
  • Managers did not have the same success for the longer-term horizons. Over the 10-year period, 86% of managers underperformed the benchmark. Over the same period, the equal-weighted average fund return was 78 bps lower (annualized) than the benchmark, while the asset-weighted average was 25 bps lower (annualized).

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SPIVA® Japan Year-End 2018

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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 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 815 Japanese large- and mid/small-cap equity funds, along with more than 678 international equity funds investing in global, international, and emerging markets, as well as U.S. equities.

  • Domestic Equity Funds: In 2018, the S&P/TOPIX 150 and the S&P Japan MidSmallCap suffered losses of 15.9% and 19.6%, respectively. Over the same period, 83.7% and 58.2% of large- and mid/small-cap equity funds underperformed their respective benchmarks, with average returns of -18.7% and -20.5%, respectively. The performance of domestic equity funds relative to their benchmark in 2018 was much worse than the observations in 2017, when the majority of funds outperformed the benchmark.

    Over the 10-year horizon, 63.2% and 56.2% of large- and mid/small- cap funds underperformed their benchmarks, respectively. While the equal- and asset-weighted 10-year annualized returns for large-cap equity funds only differed by 0.14%, the equal-weighted 10-year annualized return of the mid/small-cap equity funds exceeded the asset-weighted return by 2.94%, indicating smaller funds in the mid/small-cap equity fund category delivered much better returns than the larger funds.

  • Foreign Equity Funds: In 2018, apart from the emerging market equity fund category, the majority of foreign equity funds underperformed their respective benchmarks and posted lower equal- and asset-weighted returns than their respective benchmarks.  The S&P 500® recorded a loss of 4.7%, while U.S. equity funds had equal- and asset-weighted returns of -11.4% and -9.5%, respectively.  In contrast, the S&P Emerging BMI had a return of -19.5%, while emerging market equity funds posted a lower drawdown of 18.0% and 17.6% on an equal- and asset-weighted basis, respectively.

    Over the 10-year period, the majority of foreign equity funds underperformed their respective benchmarks. More than 90% of global, international, and emerging equity funds were outperformed by their respective benchmarks on an absolute and risk-adjusted basis. U.S. and global equity funds underperformed their respective benchmarks the most over the 10-year period (more than 300 bps). Foreign equity funds had 5- and 10-year survivorship rates of 72.9% and 57.9%, respectively, which is slightly lower than the rates for the domestic equity funds, where the 5- and 10-year survivorship rates were 80.1% and 72.9%, respectively.

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SPIVA® U.S. Year-End 2018

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Hamish Preston

Head of U.S. Equities

S&P Dow Jones Indices

SUMMARY

2018 was a rollercoaster ride for financial markets: after trade tensions weighed on investors’ sentiment in Q1, strong corporate earnings and a rosy U.S. economic outlook initially drove a recovery, before uncertainty over global economic growth and future Fed policy wiped off YTD gains for many equity benchmarks in Q4.

The S&P 500®; (-4.38%) finished 2018 with its first calendar-year loss in a decade, while the S&P MidCap 400® (-11.08%) and the S&P SmallCap 600® (-8.48%) also fell.

Amid the market volatility, 2018 was the fourth-worst year for U.S. equity managers since 2001; 68.83% of domestic equity funds lagged the S&P Composite 1500® during the one-year period ending Dec. 31, 2018.

For the ninth consecutive year, the majority (64.49%) of large-cap funds underperformed the S&P 500. The figures highlight that heightened market volatility does not necessarily result in better relative performance for active investing.

Similarly, small-cap equity managers found it more challenging to navigate 2018’s market environment compared with 2017’s rangebound market movements; 68.45% of all small-cap funds lagged the S&P SmallCap 600 over the one-year horizon. Underperformance was particularly noticeable in the small-cap value (83.33%) and small-cap core (87.55%) categories.

Growth style investing dominated through the third quarter of 2018, before succumbing to the market turbulence observed after September. However, most domestic large- and small-cap growth managers lagged their respective benchmarks in 2018. In fact, compared with results from 12 months prior, we saw 27.35 and 46.37 percentage point increases in the proportion of funds lagging the S&P 500 Growthand S&P SmallCap 600 Growth, respectively.

U.S. large-cap value offered a bright spot for active management in 2018; roughly 54% of the managers in the category beat the S&P 500 Value

.

For the second consecutive year, most domestic mid-cap funds outperformed the S&P MidCap 400. The impressive performance of mid-cap growth funds helped; 84.80% of managers beat the S&P MidCap 400 Growth, which in turn outperformed the S&P MidCap 400 in 2018.

Over the long-term investment horizon, such as 10 or 15 years, 80% or more of active managers across all categories underperformed their respective benchmarks.

It was a challenging year for global equities as all but 2 of the S&P Global BMI’s 48 country constituents declined (in USD terms). International and emerging market funds generally struggled to navigate the headwinds; 76.84% of international funds lagged the S&P 700, while the majority of emerging market managers failed to beat the S&P/IFCI Composite.

International small-cap funds had difficulty outperforming the benchmark in 2018; 65.52% of the category’s funds lagged the 18.41% plunge of the S&P Developed Ex-U.S. SmallCap.

Uncertainty over future Federal Reserve policy offered headwinds for fixed income managers at the shorter end of the curve. The vast majority of government short funds, and all of their intermediate counterparts, lagged in 2018. Similar results were recorded by the investment-grade short and intermediate categories.

In contrast, the long-end of the curve fared much better; a thumping 83.02% of government long funds and 90.91% of investment-grade long funds outperformed over the one-year horizon. But in signs that recent out-performance is no guarantee of future results, over 90% of both categories lagged over the three-year period.

Elsewhere, the majority of high-yield managers, municipal bond funds, leveraged loan funds, and MBS funds underperformed their benchmarks in 2018.

While there were some differences in relative performance figures compared with prior reports, the longer-term 15-year figures show that most active fixed income managers underperformed their benchmarks.

The disappearance of funds remains meaningful; 57% of domestic equity funds, 49% of international equity funds, and 52% of all fixed income funds were merged or liquidated over the 15-year horizon. This highlights the need to correct for survivorship bias.

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SPIVA® Australia Year-End 2018

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Akash Jain

Director, Global Research & Design

S&P Dow Jones Indices

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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.
  • The SPIVA Australia Scorecard reports on the performance of Australian active funds against their respective benchmark indices over 1-, 3-, 5-, 10-, and 15-year periods.1 In this scorecard, we evaluated returns of over 860 Australian equity funds (large, mid, and small cap, as well as A-REIT), 436 international equity funds, and 116 Australian bond funds.
  • In 2018, apart from the Australian mid- and small-cap funds, the majority of Australian funds did not outperform their respective benchmarks and had worse relative performance than in 2017.
  • There is no consistent trend in the yearly active versus index figures, but we have consistently observed underperformance for the majority of Australian active funds in most categories over the longer periods (5-, 10-, and 15-year periods).

SPIVA Australia Year-End 2018: Exhibit 1

  • Australian Equity General Funds: In 2018, the S&P/ASX 200 recorded a loss of 2.84%, while Australian large-cap equity funds suffered bigger drawdowns of 6.29% and 5.81% on equal- and asset-weighted bases, respectively. On an absolute and risk-adjusted basis, 86.7% of funds failed to outperform the benchmark, and 4.0% of them were liquidated over the one-year period. Over the 5- and 10-year periods, 79.6% and 83.2% of funds underperformed the S&P/ASX 200 on an absolute basis, respectively.
  • Australian Equity Mid- and Small-Cap Funds: Compared to large-cap equity funds, the mid- and small-cap funds delivered much better relative performance in 2018. The S&P/ASX Mid-Small dropped 7.98% in 2018, while the Australian mid- and small-cap funds recorded smaller losses of 7.95% and 6.95% on equal- and asset-weighted bases, respectively. On an absolute and riskadjusted basis, 51.9% and 45.7% of funds lagged the benchmark, respectively, with 8.5% of them being liquidated. Over the 5- and 10-year periods, 70.1% and 47.2% of funds underperformed the S&P/ASX Mid-Small on an absolute basis, respectively.
  • International Equity General Funds: In 2018, 70.4% of international equity funds underperformed the S&P Developed Ex-Australia LargeMidCap on absolute and risk-adjusted bases. The international equity general funds posted an average loss of 0.55% (equal-weighted), while the S&P Developed Ex-Australia LargeMidCap recorded a gain of 1.84%. Over the 5- and 10-year periods, about 90% of funds in this category failed to beat the S&P Developed Ex-Australia LargeMidCap, making it the worst-performing fund category by benchmark-relative returns.
  • Australian Bond Funds: The S&P/ASX Australian Fixed Interest 0+ Index recorded a gain of 4.54% in 2018, while the Australian bond funds gained 3.24% and 3.45% on an equal- and assetweighted basis, respectively. On an absolute basis, 98.4% of Australian bond funds underperformed the benchmark, but only 62.3% of funds underperformed on a risk-adjusted basis, as the majority of the bond funds had lower return volatility than the benchmark over the one-year period. No funds were liquidated in this category over the one-year period.
  • Australian Equity A-REIT Funds: The S&P/ASX 200 A-REIT posted a gain of 2.91% and outperformed the S&P/ASX 200 by a significant margin in 2018. However, less than a quarter of Australian A-REIT funds managed to outperform the index on an absolute and risk-adjusted basis. Funds in this category posted returns of 0.03% and 0.79% on an equal- and asset-weighted basis, respectively, over the one-year period. Over the 5- and 10-year periods, 83.3% and 78.1% of funds underperformed the S&P/ASX 200 A-REIT on an absolute basis, respectively.
  • Fund Survivorship: In 2018, 4.3% of Australian funds from all measured categories were merged or liquidated, with Australian bond funds recording a 100% survival rate and the Australian mid- and small-cap funds disappearing at the fastest rate (8.5%). Over the longer periods, only 80.6% and 57.7% of funds across all categories survived the 5- and 10-year periods, respectively, with international equity funds having the lowest survival rates for both periods.
  • Average Fund Returns: Apart from the Australian mid- and small-cap funds, all fund categories recorded lower returns than their respective benchmarks for almost all measured periods on both an equal- and asset-weighted basis. International equity funds had the worst underperformance versus the benchmark for the 5-, 10-, and 15-year periods. Besides the Australian mid- and smallcap funds, all fund categories recorded higher asset-weighted returns than equal-weighted returns, indicating that larger funds tended to outperform smaller funds in these categories.

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SPIVA® Institutional Scorecard 2017

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Hamish Preston

Head of U.S. Equities

S&P Dow Jones Indices

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.

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