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SPIVA U.S. Year-End 2021

SPIVA Australia Year-End 2021

SPIVA Latin America Year-End 2021

Australian Persistence Scorecard: Mid-Year 2021

Persistence Scorecard Latin America Mid-Year 2021

SPIVA U.S. Year-End 2021

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Berlinda Liu

Director, Multi-Asset Indices

SUMMARY

Global equity markets powered ahead in 2021, despite the ongoing COVID-19 pandemic. As rocky vaccine rollouts and new coronavirus variants prolonged the pandemic, governments and central banks continued their strategies of generous fiscal spending and loose monetary policy. The S&P 500® gained 28.7% in 2021, capping an impressive 100.4% cumulative advance over the past three years.

The positive market performance translated into good absolute returns for active fund managers, although relative performance continued to disappoint: 79.6% of domestic equity funds lagged the S&P Composite 1500® in 2021.

SPIVA U.S. Year-End 2021 Graph 1

In 16 of the 18 categories tracking U.S. equities-focused funds, more than half the funds underperformed their benchmark. Particularly noteworthy were the 98.6% of large-cap growth funds that failed to beat the S&P 500 Growth—not only the worst-performing category in 2021, but the worst performing of any U.S. equities category in the past 21 years.

Large-cap funds continued their underperformance for the 12th consecutive calendar year, as 85% of active large-cap funds trailed the S&P 500. Mid-cap (62%) and small-cap (71%) funds acquitted themselves slightly better relative to the S&P MidCap 400® and S&P SmallCap 600®, but still offered scant reason to celebrate.

Fund managers often respond to evidence of active underperformance by claiming to offer better returns per unit of volatility (i.e., to outperform in risk-adjusted terms). This would be an appropriate counterargument, if only it were true. However, the data shows that the vast majority of actively managed funds underperformed on this metric as well. Among domestic equity funds, while 90% have underperformed the S&P Composite 1500 over the past 20 years, an even greater 95% did so on a risk-adjusted basis.

SPIVA U.S. Year-End 2021 Graph 2

For internationally focused U.S. funds, relative results in 2021 were a mixed bag. Most global (84%) and emerging markets (65%) funds failed to top the S&P Global 1200 and S&P/IFCI Composite, respectively. Investors in international (50%) and international small-cap (31%) funds were less likely to fall short of the S&P International 700 and S&P Developed Ex-U.S. SmallCap, respectively. Taking a longer view, however, nearly 85-90% trailed their benchmarks over the past 20 years, similar to their domestic counterparts.

While equity markets whistled past the inflation graveyard, the fixed income world started to price in the end of the easy money party. The Bloomberg Barclays US Government (1-3 Year), Intermediate, and Long indices returned -0.60% -1.69%, and -4.57% for the year, respectively. The funds charged with beating these benchmarks reflected this non-parallel movement in the rates term structure: government short funds had little chance (26%) of beating their hurdle rate, but intermediate (52%) and long (82%) funds took greater advantage of the lower bars they needed to clear.

Echoing the results from equities, longer observation horizons offered little sanctuary. More than 60% of funds did not surpass their benchmarks across all fixed income categories over the 15-year horizon on both an absolute and risk-adjusted basis.

The SPIVA Scorecard's accounting for survivorship bias continues to be a valuable cautionary tale. As has generally been the case in recent years, roughly 5% of funds across asset classes and categories were merged or liquidated in 2021. Over 20 years, nearly 70% of domestic equity funds and two-thirds of internationally focused equity funds across segments were confined to the history books. Similarly, roughly half of fixed income funds closed their doors over the past 15 years.

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SPIVA Australia Year-End 2021

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Priscilla Luk

Managing Director, Global Research & Design, APAC

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Tim Wang

Senior Analyst, Global Research & Design

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 past 20 years, we have built on our experience publishing the report by expanding scorecard coverage into Australia, Canada, Europe, India, Japan, Latin America, South Africa, and the MENA region.

  • The SPIVA Australia Scorecard reports on the performance of Australian active funds against their respective benchmark indices over different time periods. In this scorecard, we evaluate the returns of Australian large-cap equity funds, Australian mid-small cap equity funds, international equity funds, Australian bond funds, and Australian A-REIT funds.
  • In 2021, more than one-half of the funds in the Australian Equity General and Australian Equity Mid- and Small-Cap categories beat their respective benchmarks, though the majority of funds in the International Equity General, Australian Bonds, and Australian Equity A-REIT categories recorded smaller returns than their respective benchmarks.
  • 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. Over the 5- and 10-year periods, the majority of active funds underperformed their respective benchmark indices across categories.
  • Active funds from all categories recorded aggregated liquidation rates of 25.5% and 40.9% for the 5- and 10-year periods, respectively. Australian Bonds funds had the lowest liquidation rates among all fund categories in those periods.

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SPIVA Latin America Year-End 2021

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María Sánchez

Director, ESG Index Product Strategy, Latin America

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Cristopher Anguiano

Senior Analyst, U.S. Equity Indices

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.

The recovery trend that Latin American countries showed during the first half of 2021 was difficult to sustain during the second half of the year, especially for Brazilian equity markets, which ended the year in the red even in local currency. Inflationary pressures remained; in turn, central banks continued increasing interest rates. Although volatility continued to stabilize downward, it remained above pre-pandemic levels in the three countries covered in this report. Despite this environment, the majority of active managers across categories failed to outperform, especially over longer periods.

SPIVA Latin America Year-End 2021 Graph 1

Brazil

  • The Brazilian equity market dropped dramatically during the second half of 2021, with the S&P Brazil BMI falling 20.26% in the last six months of 2021 and ending the year down 14.89% (see Report 3). Large-cap and mid-/small-cap companies also suffered during the second half of 2021, returning -21.21% and -18.33%, respectively, as measured by the S&P Brazil LargeCap and S&P Brazil MidSmallCap. Additionally, the National Monetary Council reversed the policy interest rate (Selic) trend by increasing it 500 bps, from 4.25% to 9.25%, in the second half of 2021.
  • Over the one-year period, 66.67% of Brazil Large-Cap Funds outperformed their benchmark, while most active fund managers underperformed their benchmarks in the other categories: 60.26% of Brazil Equity Funds and 67.65% of the Brazil Mid-/Small-Cap Funds. In addition, active managers from all categories, with the exception of Brazil Large-Cap Funds, fared poorly relative to their respective benchmarks over all periods observed, particularly in the mid-/small-cap category, where just 8.45% of managers were able to beat their benchmark over the 10-year period (see Report 1).
  • The majority of Brazil Corporate Bond Funds underperformed their benchmarks over all periods observed, while 67.49% of Brazil Government Bond Funds were able to outperform their benchmark over the one-year period (see Report 1). Moreover, in this report, we observed poor survival rates for Brazil Corporate Bond Funds over the 5- and 10-year periods, with 26.88% and 31.67% surviving, respectively (see Report 2).

Chile

  • Chile struggled to continue the recovery seen in the first half of 2021 over the second half of the year, leading to a 3.40% return for the 12-month period ending Dec. 31, 2021, as measured by the S&P Chile BMI.
  • The majority of active equity fund managers underperformed the S&P Chile BMI over all periods studied, but the underperformance was especially high over the longer time periods, with 87.50% and 97.78% of active funds underperforming the benchmark over the 5- and 10-year periods, respectively (see Report 1). Funds underperformed the benchmark by medians of 1.79% and 2.25% over the 5- and 10-year periods, respectively (see Report 5).
  • Smaller funds performed relatively better than larger funds over 3-, 5- and 10-year periods on an equal-weighted basis (see Report 3) versus an asset-weighted basis, while large funds performed relatively better in the one-year period, with a difference of 138 bps (see Report 4).

Mexico

  • The S&P/BMV IRT gained 7.73% over the second half of 2021, resulting in a 24.38% return for the year. The majority of active managers underperformed the S&P/BMV IRT over all periods observed, with the worst result over the three-year period, with 91.49% of the funds underperforming their benchmark (see Report 1).
  • Median fund underperformance was 6.28%, 3.61%, 3.53%, and 2.07% for the 1-, 3-, 5-, and 10-year periods, respectively (see Report 5). Not even managers in the first quartile managed to outperform the benchmark over any period.
  • Despite the poor performance of active managers in the first half of the year, the survival rates of active funds in Mexico were the highest of Latin America, at 100%, 93.62%, 90.70%, and 77.78% over the 1-, 3-, 5-, and 10-year periods, respectively (see Report 2); this marked five scorecards in a row that the three- and five-year periods had the highest survivorship rate.
  • Smaller funds performed relatively better than larger funds over the one-, three-, and five-year periods on an equal-weighted basis, especially over the three-year period, with 158 bps of difference. For the 10-year period, larger funds performed relatively better (see Report 3).

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Australian Persistence Scorecard: Mid-Year 2021

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Priscilla Luk

Managing Director, Global Research & Design, APAC

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Tim Wang

Senior Analyst, Global Research & Design

EXECUTIVE SUMMARY

  • While comparing active funds against their respective benchmark indices is a typical practice to evaluate their performance, persistence is an additional test that can reveal 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 three- and 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. 

  • Among top-performing funds in the 12-month period ending in June 2017, only 3.0% maintained a top-quartile rank, and only 4.1% consistently beat their benchmarks in the following four consecutive years.
  • Over two successive three- and five-year periods, a majority of top performing funds failed to stay in the top quartile consistently.
  • Around half of the outperforming funds managed to beat their respective benchmarks consistently for two successive three-year periods, but much less for two successive five-year periods.
  • Out of the 166 Australian funds that ranked in their respective top quartile in the five-year period ending June 2016, only 26.5% of them remained in the top quartile in the subsequent five-year period.
  • Out of the 234 Australian funds that outperformed their respective benchmarks in the five year period ending in June 2016, only 34.2% continued to outperform in the following five-year period. 

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Persistence Scorecard Latin America Mid-Year 2021

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María Sánchez

Director, ESG Index Product Strategy, Latin America

INTRODUCTION

A key dimension of any active versus passive debate is managers’ ability to consistently deliver above-average returns over multiple periods.  Persistence in performance is one out of many possible ways to differentiate skill from luck.

In this report, we measure the performance persistence of active funds in Brazil, Chile, and Mexico that outperformed their peers over consecutive three- and five-year periods.  We also analyze how their performance ranking transitioned over subsequent periods.

SUMMARY OF RESULTS

Brazil

  • Top performers in Brazilian fixed income fund categories showed better chances than equity categories of remaining in the top quartile over three years (see Report 1).

  • Report 2 highlights the inability of top-performing equity fund managers to consistently repeat success in subsequent years. The least persistent were Brazil Equity Fund managers—by the fourth year, just 3% of them remained in the top quartile and none by the fifth year.
  • The majority of Brazil Corporate Bond Fund managers did not maintain consistent outperformance for five years in a row; only 7% of them were able to persist. Brazil Government Bond Fund managers did not show better results; 2% of them delivered consistent outperformance for five years in a row (see Report 2).
  • The five-year transition matrix (see Report 5) highlights the Brazil Corporate Bond Funds category. The chance of a winning fund remaining in the top quartile after five one-year periods was lower than the chance of it liquidating.
  • More than half (59%) of the top-quartile funds in the Brazil Equity Funds category remained in first and second quartile over the five-year period (see Report 5).

Chile

  • Report 2 shows the lack of persistence by equity managers in Chile—just 10% of top-performing funds in the first 12-month period repeated their outperformance after five years.
  • In Report 3, we can observe that 13% of the top-quartile funds in the first period of the three-year transition matrix remained in the top-quartile after three years.
  • Funds in third quartile of the five-year transition matrix were more likely to be liquidated (78%) than to stay or move to lower quartiles (see Report 5).

Mexico

  • As observed in the SPIVA® Latin America Mid-Year 2021 Scorecard, Mexico had a higher rate of fund survivorship than Brazil and Chile in the three- and five-year periods. Reports 3, 4, 5, and 6 show that Mexican funds had a lower chance of being shut down than Brazilian and Chilean funds.
  • The five-year performance persistence test (see Report 2) shows that top-quartile managers had difficulty replicating their outperformance in subsequent years. After one year, just 27% of managers remained in the top quartile, and by the end of year two, none remained.
  • Report 5 shows that top-quartile managers in the first five-year period survived in the second five-year period; however, they were more likely to move to the fourth quartile than remain in the top.

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