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SPIVA® U.S. Scorecard: Mid-Year 2017

Multiple Operators Suffer Damage to Fiber Networks from Hurricane Michael

Factbox: Hurricane Michael Impact Turns from Production Loss to Demand Destruction

Storm Tracker: Power Utilities in Hurricane Michael's Path Stage Thousands of Workers

Approaching Michael shuts in 30% of Gulf gas, expected to whip prices

SPIVA® U.S. Scorecard: Mid-Year 2017

Global markets soared in the first half of 2017, largely due to the momentum gained from the November 2016 U.S. election results. The U.S. equity market posted strong gains across all cap ranges, with the S&P SmallCap 600® posting 22.47% over the 12-month period as of June 30, 2017. The S&P MidCap 400® and S&P 500® followed, reporting gains of 18.57% and 17.90%, respectively.

During the one-year period, the percentage of managers outperforming their respective benchmarks noticeably increased, compared to results from six months prior. Over the one-year period, 56.56% of large-cap managers, 60.69% of mid-cap managers, and 59.55% of small-cap managers underperformed the S&P 500, the S&P MidCap 400, and the S&P SmallCap 600, respectively.

We also see similar results between managers’ weighted fund returns and the benchmarks over the same period. The observation is consistent across all three market cap ranges. This is in contrast to six months prior when over 80% of funds underperformed and displayed large performance deviations from their cap-weighted benchmarks.

While results over the short term were positive, the figures are more in line with historical results when viewed over longer-term investment horizons. Over the five-year period, 82.38% of large-cap managers, 87.21% of mid-cap managers, and 93.83% of small-cap managers lagged their respective benchmarks.

Similarly, over the 15-year investment horizon, 93.18% of large-cap managers, 94.40% of mid-cap managers, and 94.43% of small-cap managers failed to outperform on a relative basis.

Over the 12-month period ending June 30, 2017, growth managers across all three market cap ranges fared better than their core and value counterparts. The results highlight the cyclicality of style managers, as core managers fared the best six months prior with the exception of small caps, while value managers outperformed both core and growth one year prior

Across nine U.S. style categories, large-cap value managers continued to perform the best over the 10-year horizon, with 35.75% of managers outperforming the benchmark, the S&P 500 Value.

The headline international equity and emerging market equity indices experienced a similar rally starting in November 2016 and continuing through the first half of 2017. Over the one-year period ending June 30, 2017, the headline international and emerging market indices posted strong double-digit returns.

During the same one-year period, with the exception of actively managed international small-cap equity funds, the majority of managers investing in global, international and emerging market funds underperformed their respective benchmarks.

Over the 3-, 5-, 10-, and 15-year investment horizons, managers across all international equity categories underperformed their benchmarks.

The U.S. Federal Reserve increased rates twice in during the first half of 2017. However, the 10- Year U.S. Treasury yield fell to 2.31%, resulting in a flatter yield curve. During the one-year period studied, the majority of active fixed income managers investing in government and corporate credit bonds substantially outperformed their benchmarks, with the exception of those investing in intermediate-term government bonds.

High-yield bond spreads have tightened considerably compared with Treasuries, and default rates remain low, reflecting the health of issuing companies. During the one-year period, high-yield managers struggled compared with their benchmarks, with over 83% of actively managed highyield bonds failing to deliver higher returns than the benchmark’s 12.70% return.

The majority of municipal funds underperformed over the 12-month period, despite promising results over the three- and five-year investment horizons. However, over the 10- and 15-year periods, most muni funds underperformed their benchmarks. While these funds underperformed over the long term, it should be noted that municipal categories have some of the best survivorship statistics.

Funds disappear at a meaningful rate. Over the 15-year period, more than 58% of domestic equity funds, 55% of international equity funds, and approximately 47% of all fixed income funds were merged or liquidated. This finding highlights the importance of addressing survivorship bias in mutual fund analysis.

Multiple Operators Suffer Damage to Fiber Networks from Hurricane Michael

Communications providers are working to restore services in areas impacted by Hurricane Michael, but storm debris, power outages and significant fiber damage are hindering progress in those counties most devastated by the storm.

As of Oct. 14, a number of counties along the Florida Panhandle had more than half of their cell sites down, including Bay County — home of Panama City and Mexico Beach, described as "ground zero" of the storm by U.S. Federal Emergency Management Agency administrator Brock Long — where 66.1% of cell sites were down. Similarly, neighboring Gulf County had 69.6% of cell sites down, according to data from the U.S. Federal Communications Commission.

Based on the amount of damage in the area and ongoing power outages, it could be weeks before services are restored. Long said Oct. 12 that after search and rescue, restoring communications in impacted counties is among FEMA's top priorities.

"You have to be able to communicate to appropriately respond and we are trying to do everything we can to get the private sector vendors, the Verizon [Communications Inc.]'s of the world, to get in to try to get their systems back up and running," he said.

Long added, however, that the process is not easy. "There was a tremendous amount of debris. When you look at the damage in Mexico Beach, that is where the ocean rose potentially 14 feet … and shoved buildings out of the way. When you have that type of damage, it takes time to get in and go through," he said.

Hurricane Michael made landfall Oct. 10 near Mexico Beach as a Category 4 hurricane with 155-mile-per-hour winds.

For its part, Verizon said the "vast majority" of Florida and Georgia service has been restored, with 99% of the company's network in Georgia in service and 97% of its network in Florida. But the company noted there are pockets, particularly near Panama City, where the damage is severe.

"The storm caused unprecedented damage to our fiber, which is essential for our network — including many of our temporary portable assets — to work. Our fiber crews are working around the clock to make repairs, and while they are making good progress, we still have work to do to get the fiber completely repaired," the company said Oct. 14.

Fiber is the connecting component of a network that carries data from point to point. It is necessary for Verizon's permanent and temporary cell sites to be operational. The company noted that while it has multiple fiber paths to carry data, "The severity and intensity of the storm caused damage to all duplicate routes in the Panama City and Panama City Beach area."

In terms of wireline services, the FCC said 291,300 subscribers remain out of service as of Oct. 14, including 205,643 subscribers in Florida. The figures were down from a day earlier, when a total of 337,223 subscribers were without service, including 233,843 in Florida.

The top residential video and broadband provider in Bay County is Comcast Corp., according to MediaCensus data from Kagan, a research group within S&P Global Market Intelligence. Comcast, the largest cable operator in the U.S., said in an Oct. 12 statement that it is working to get Xfinity services back online.

"As power returns … and it becomes safe for our technicians and restoration crews, we will work to repair any damages affecting our network," the company said.

As of Oct. 15, more than 162,000 customers in Florida remained without power, including all 27,275 customers served by Gulf Coast Electric Cooperative. The cooperative said in an Oct. 12 Facebook Inc. post that its distribution system "suffered catastrophic damage"

In Gulf County, the top residential video provider is AT&T Inc.'s satellite video service DIRECTV, according to MediaCensus data, while the top residential broadband provider is Mediacom Communications Corp., the fifth-largest cable operator in the U.S.

Mediacom said Oct. 14 that its recovery efforts are underway but its network in Florida has 14 miles of severely damaged fiber near Walton County, as well as 25 miles of damaged fiber east of Panama City that is obstructing video transmission from Gulf County to Walton County.

"Our current priority remains focusing on repairing damage to our high-speed data transport network and main transmission facilities and repairing downed lines where we have access to the area. We have outages from widespread loss of commercial power along with downed lines, and structural damage throughout our systems," the cable operator said.

Factbox: Hurricane Michael Impact Turns from Production Loss to Demand Destruction

Houston, Oct. 11 2018 — Hurricane Michael made landfall at the Florida panhandle as a Category 4 hurricane Wednesday with 155 mph winds, quickly destroying demand for power, natural gas and refined oil products. Shut-in oil production rose modestly from Tuesday to over 700,000 b/d, but the storm has stayed east of much of the region's production, which means supply should be back online quickly.

Meanwhile, the severity of the storm has surprised to the upside, which could a mean longer lasting and more severe impact on demand for power, natural gas, refined products and ultimately crude oil.

"We expect the impact on refined products demand to be below that of previous hurricanes in the Gulf Coast such as Harvey in 2017, as the region impacted by Michael has lower population density than Houston ... Nevertheless, the impacts are favoring the high side of our estimates given the sheer severity of the storm," said Claudio Giamberti, Head of Demand and Refining at S&P Global Platts Analytics.

As of 7 pm EDT, the eye of Michael was moving over southwestern Georgia with maximum sustained winds still at 100 mph, according to the National Hurricane Center. The storm is expected to move northeast across the Carolinas before heading back out to sea Friday morning.

Storm Tracker: Power Utilities in Hurricane Michael's Path Stage Thousands of Workers


Loads to drop 20-30%

Prices may rebound after the storm

Houston, Oct. 09 2018 — Power utilities in the forecast path of Hurricane Michael have staged thousands of workers to help restore power for customers along the Florida Gulf Coast plus parts of southern Alabama and Georgia, where power demand is likely to fall by 20% to 30%

As of 1 pm CDT Tuesday, the storm was about 335 miles south of Panama City on the Florida Panhandle, packing maximum sustained winds of 110 mph, traveling north at 12 mph, the National Hurricane Center said in a public advisory.

The storm center is set to land in Northwest Florida Wednesday "and then move northeastward across the southeastern United States Wednesday night and Thursday, and move off the Mid-Atlantic coast ... by Friday," the advisory states.

Approaching Michael shuts in 30% of Gulf gas, expected to whip prices


726 MMcf/d of Gulf of Mexico gas shut in

Storm triggers gas demand destruction

Houston, Oct. 09 2018 — Hurricane Michael was barreling down on the Florida Panhandle Tuesday, shutting down nearly 30% of gas production and 40% of oil output from the offshore Gulf of Mexico. The Category 3 storm also was whipping prices up and down, while threatening to knock out power service and drive down regional gas demand upon making landfall.

The storm's path will take it over a large swath of the Gulf's oil and gas producing region, resulting in the shutting in of 726 MMcf/d of gas, or more than 28% of the Gulf's total gas output, and 670,831 b/d of oil, representing nearly 40% of total Gulf production, the US Bureau of Safety and Environmental Enforcement said Tuesday afternoon.