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SPIVA® South Africa Mid-Year 2018

SPIVA® Europe Mid-Year 2018

SPIVA® Latin America Scorecard Mid-Year 2018

SPIVA® Australia Mid-Year 2018

Persistence of Australian Active Funds: September 2018

SPIVA® South Africa Mid-Year 2018

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Zack Bezuidenhoudt

Director, Client Coverage Israel, Benelux, Nordics, and U.K.

S&P Dow Jones Indices

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Andrew Innes

Head of Global Research & Design

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 S&P Indices Versus Active (SPIVA) U.S. Scorecard in 2002. The SPIVA South Africa Scorecard measures the performance of actively managed, South African equity and fixed income funds denominated in South African rands (ZAR) against their respective benchmark indices over one-, three-, and five-year investment horizons.

MID-YEAR 2018 HIGHLIGHTS

The stock market rally in South Africa in 2017, buoyed by loosening monetary policy and new leadership expectations, failed to extend into 2018. The S&P South Africa Domestic Shareholder Weighted (DSW) Capped Index was up 7.6% year-over-year in June 2018, yet it was down 6.0% from the start of the year.

When comparing South African active equity fund manager performance to the capped benchmark over the one-year period, 51% failed to outperform. However, the asset-weighted performance of the category outperformed the same benchmark by 70 bps. This suggests larger funds may have benefited from their increased exposure to the largecap stocks that contributed most to market returns. Interestingly, 77% of active funds from the same category failed to outperform over the five-year period.

The strengthening of the South African rand in December 2017 in anticipation of Ramaphosa replacing Zuma as leader of the ruling African National Congress was short-lived. After the euphoria, the reality of the task ahead set in, and the U.S.-China trade war further exacerbated the local challenges facing the president. The GDP was revised to fall 2.6% on an annualized basis in the first quarter—the sharpest contraction in almost a decade. The subsequent 0.7% drop in the second quarter put the country in a technical recession.

The South African rand weakened through Q2 2018 alongside other emerging market currencies. From the perspective of a local investor, the depreciation contributed to higher returns offered across international markets. The S&P Global 1200 increased 16.7% in local currency terms between June 2017 and June 2018.

South African active funds investing in global equities underperformed by 3% on an assetweighted basis, and 82% of funds were unable to beat the S&P Global 1200 within the same oneyear period.

In an attempt to tackle the country’s rising debt, value-added tax (VAT) was increased 1% in South Africa earlier in 2018. Meanwhile, S&P Global Ratings affirmed South Africa’s sub-investment grade credit rating and kept its outlook stable with ‘BB’ and ‘BB+’ on its foreign and local currency debt, respectively. However, it was noted that the ratings could be lowered if the rule of law, property rights, or enforcement of contracts were to weaken. Hence, the controversial, populist policy of land expropriation without compensation has many concerned it will erode trust and dampen foreign investment. The S&P South Africa Composite Property Index fell sharply at the start of the year; the index was down 18.7% (in South African rands) over the first half of 2018.

The SPIVA South Africa Scorecard also covers the performance of actively managed fixed income funds that manage short-term bonds or diversified and aggregate bonds. In the one-year period ending in June 2018, short-term fixed income funds predominately outperformed the South Africa Short Term Fixed Interest (STeFI) Composite, with just 13% underperforming. These results are fairly typical for the group, since the benchmark does not reflect the opportunities available to fixed income managers through the corporate bond markets. Over the same 12-month period, 70% of active funds in the Diversified/Aggregate Bond category were unable to beat the S&P South Africa Sovereign Bond 1+ Year Index, which rose 10.1% (in local currency terms).

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SPIVA® Europe Mid-Year 2018

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Andrew Innes

Head of Global Research & Design

S&P Dow Jones Indices

S&P Dow Jones Indices has been the de facto scorekeeper of the ongoing active versus passive debate since the first publication of the S&P Indices Versus Active Funds (SPIVA) U.S. Scorecard in 2002. The SPIVA Europe Scorecard measures the performance of actively managed European equity funds denominated in euro (EUR), British pound sterling (GBP), and other European local currencies against the performance of their respective S&P DJI benchmark indices over 1-, 3-, 5-, and 10-year investment horizons.

MID-YEAR 2018 HIGHLIGHTS

  • Of the active pan-European equity funds (euro-denominated), 59% failed to beat the S&P Europe 350® from June 2017 to June 2018.
    • The mean one-year performance for the fund category was 28 bps higher than the benchmark. This may indicate the minority of funds outperformed sufficiently to prop up the group’s average.
    • The proportion of funds in the category failing to beat the same benchmark rose to 87% over the 10-year period.
  • Volatility reappeared in Q1 2018, but ultimately European equity markets remained resilient.
    • The S&P Europe 350 was up 3.5% (in euros) year-over-year in June 2018.
    • Recent eurozone GDP data pointed to stable growth in the first half of 2018, albeit lower than 2017.
    • The ECB’s announcement to keep historically low interest rates through the summer of 2019 was received favorably by the markets, despite it also announcing that it will end its quantitative easing program by the end of 2019.
  • The track record for euro-denominated active funds investing in either U.S. or global equities remained bleak.
    • Over the 10-year period ending in June 2018, only 11 out of 490 eligible active funds investing in U.S. equities (denominated in euros) survived and outperformed the S&P 500®.
    • The equivalent figure for the euro-denominated Global Equity fund category was 15 out of 1,396 funds that survived and outperformed the S&P Global 1200.
  • The S&P 500 outperformed many European benchmark indices; up 11.7 % in euro terms over the one-year period ending in June 2018.
    • U.S. tax cuts and fiscal stimulus supported a wide earnings gap for U.S. corporates over Europe and elsewhere.
    • Lifted by large exposure to the U.S., the S&P Global 1200 posted a return of 9.1% in euros.
  • The desynchronization of global growth and central banks’ policies hindered emerging markets. Active funds investing in these regions from within Europe generally did not find stock picking to be advantageous.

    • Rising geopolitical risk, oil prices, trade tariffs, and a general strengthening of the U.S. dollar in the first half of 2018 weighed least favorably on emerging markets’ growth expectations.
    • Emerging markets experienced significant sell-offs in H1 2018. However, gains from the second half of 2017 resulted in the broad emerging equities benchmark, the S&P/IFCI, returning 6.3% year-over-year in euro terms as of mid-year 2018.
    • The asset-weighted performance of active emerging market equity funds (denominated in EUR) was 3.0% for the same period.
    • One in five of these funds beat the returns of the benchmark over the one-year period ending in June 2018. This success rate falls to 1 in 100 over the 10-year period.
  • A handful of single-country fund categories across Europe outperformed their respective benchmarks in the one-year period ending June 2018.
    • On an asset-weighted basis, the average performance of active equity funds in Spain, Switzerland, Sweden, and small-cap companies in the UK was better than their respective benchmarks over the one-year period.
    • On the same basis, France, Germany, Italy, Netherlands, Denmark, and Poland active equity funds underperformed their respective benchmarks.

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SPIVA® Latin America Scorecard Mid-Year 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

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.

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SPIVA® Australia Mid-Year 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 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.

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Persistence of Australian Active Funds: September 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 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.

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