Summary

• The first half of 2016 saw global markets end in the red, largely in part due to Brexit and market uncertainty. The U.S. equity market posted modest gains across all cap ranges, with the S&P 500® posting 3.84% YTD and 3.99% year-over-year as of June 30, 2016.
• During the one-year period, 84.62% of large-cap managers, 87.89% of mid-cap managers, and 88.77% of small-cap managers underperformed the S&P 500, the S&P MidCap 400®, and the S&P SmallCap 600®, respectively.
• The figures are equally unfavorable when viewed over longer-term investment horizons. Over the five-year period, 91.91% of large-cap managers, 87.87% of mid-cap managers, and 97.58% of small-cap managers lagged their respective benchmarks.
• Similarly, over the 10-year investment horizon, 85.36% of large-cap managers, 91.27% of mid-cap managers, and 90.75% of small-cap managers failed to outperform on a relative basis.
• Over the 12-month period ending June 30, 2016, value managers across all three market cap ranges fared better than their core and growth counterparts. Data shows that only 1 out of 10 large-cap, midcap, and small-cap growth managers outperformed their respective benchmarks.
• Across nine U.S. style categories, large-cap value managers performed the best over the 10-year horizon, with 32% of managers outperforming the benchmark, the S&P 500 Value.
• The headline international equity and emerging market equity indices rebounded sharply during the first half of 2016. The gains, however, were not sufficient to erase the losses sustained in 2015. Over the one-year period ending June 30, 2016, the headline international and emerging market indices posted negative returns.
• During the same one-year period, with the exception of actively managed emerging markets funds, the majority of managers investing in global equities, international, and international small-cap equities underperformed their respective benchmarks.
• Over the 10-year investment horizon, managers across all international equity categories underperformed their benchmarks.
• The hunt for yield has become increasingly challenging for fixed income managers. During the one-year period studied, the majority of managers investing in government and corporate credit bond categories underperformed their benchmarks, with the exception of those managing intermediate-term corporate credit funds.
• The high-yield bond market recovered during the first half of 2016. Rebounds in the commodity sectors contributed to the rally, with spreads tightening considerably. During the one-year period, three-quarters of actively managed high-yield bonds failed to deliver higher returns than the benchmark. This marks a sharp reversal of fortune for high-yield funds from results seen at yearend 2015, when the majority of the funds beat the benchmark.
• Strength in the high-yield bond market also extended to the leverage loan sector. The S&P/LSTA U.S. Leveraged Loan 100 Index posted a gain of 5.36% YTD and 0.69% year-over-year as of June 30, 2016. Actively managed senior loan funds fared favorably over the one-year period, with nearly 60% of the funds outperforming the benchmark.
• Funds disappear at a meaningful rate. Over the five-year period, nearly 21% of domestic equity funds, 21% of global/international equity funds, and 14% of fixed income funds were merged or liquidated. This finding highlights the importance of addressing survivorship bias in mutual fund analysis