Over the six-month period ending June 2024, a large majority (71%) of funds across all our reported New Zealand fund categories underperformed their assigned benchmarks.
As highlighted in the SPIVA Global Scorecard, the first half of 2024 proved to be a particularly challenging market environment for active managers across developed equity markets, as the outperformance of the very largest companies resulted in a high proportion of index constituents underperforming their benchmarks. A significant majority of actively managed global equity funds domiciled in New Zealand lagged the S&P World Index, including 74% of funds in the Global Equity category and 69% of funds in the Global Equity (Hedged) category (see Exhibit 1).
New Zealand domestic equity funds had relatively better results, as the country’s equity market set the bar significantly lower, with a -0.5% total return (-0.1% with imputation credits) for the S&P/NZX 50 Index. A slim minority (46%) of New Zealand Equity funds underperformed, posting an asset-weighted average return of 1% (see Report 1).
With tailwinds for style bias in duration and credit, many active managers in the New Zealand Bond category performed well. Only 15% of funds underperformed, with an asset-weighted average return of 1.4% versus a 0.8% return of the S&P/NZX Composite Investment Grade Bond Index in H1 2024.
Market Context: H1 2024 and Beyond
New Zealand equities remained sluggish in the first half of the year, decoupling from other developed markets, but they turned around in the second half, with the S&P/NZX 50 posting a 7.4% YTD gain through October 2024. The largest companies had a relatively better start but lost their leadership, with the S&P/NZX 10 versus the S&P/NZX MidCap spread return turning from 2.6% in H1 2024 to -7.5% in July-October 2024 (see Exhibit 2).
Given that 64% of constituents underperformed the S&P/NZX 50 in H1 2024, the odds for stock picking were not that great. Given this environment, the 46% underperformance rate of the New Zealand Equity funds was a relatively modest result. For historical context, the annual underperformance rate of New Zealand Equity funds averaged at 59% for the past 10 years. With market leadership rotating amid a broad rally in the third quarter, we will continue to observe how New Zealand Equity managers navigate the changing market dynamics in 2024.
