SPIVA® U.S. Scorecard - Year-End 2016

S&P Dow Jones Indices
Written By: Aye Soe and Ryan Poirier
S&P Dow Jones Indices
Written By: Aye Soe and Ryan Poirier

Summary

  • Starting with this scorecard, we will report the relative outperformance or underperformance of actively managed funds against their respective benchmarks over a 15-year investment horizon. The longer time horizon provides a complete market cycle to measure the effectiveness of managers across all categories.
  • Given that market conditions can impact managers’ performance from year to year, we also added rolling three-year relative performance figures from 2003 through 2016, calculated on a semiannual basis across major domestic and international equity categories.
  • The U.S. equity market finished 2016 on a strong run. Even though the S&P 500® , S&P MidCap 400® , and S&P SmallCap 600® all posted 10% losses by mid-February 2016, the indices rallied back to finish the year on a positive note, posting 11.96%, 20.74%, and 26.56%, respectively. Approximately one-half of the year’s total return for the S&P 500 and S&P MidCap 400 came within the last two months of the year, while almost two-thirds of the S&P SmallCap 600’s gains came from the same period.
  • During the one-year period ending Dec. 31, 2016, 66% of large-cap managers, 89.37% of mid-cap managers, and 85.54% of small-cap managers underperformed the S&P 500, the S&P MidCap 400, and the S&P SmallCap 600, respectively. These figures are on par with the one-year performance figures reported in June 2016, with the exception of large-cap managers, who faired relatively better.
  • Figures over the five-year period did not change significantly from the SPIVA U.S. Mid-Year 2016 Scorecard.1 During the five-year period ending Dec. 31, 2016, 88.3% of large-cap managers, 89.95% of midcap managers, and 96.57% of small-cap managers underperformed their respective benchmarks.
  • Given that active managers’ performance can vary based on market cycles, the newly available 15-year data tells a more stable narrative. Over the 15-year period ending Dec. 2016, 92.15% of large-cap, 95.4% of mid-cap, and 93.21% of small-cap managers trailed their respective benchmarks.
  • During the same 15-year period, large-cap value managers fared better than their growth counterparts.
  • International markets finished the year on a positive note. Global large caps, as measured by the S&P Global 1200, and emerging markets, as measured by the S&P/IFCI Composite, both rallied throughout the year to end with gains of 8.89% and 10.79%, respectively.
  • Across all time horizons, the majority of managers across all international equity categories underperformed their benchmarks.
  • In December 2016, the U.S. Federal Reserve raised the interest rate for the second time in a decade. Managers investing in intermediate- and short-term credit fared the best over the oneyear period, with only 19.75% and 26.61% underperforming, respectively. The same trend held through the five-year period. The 10- and 15-year periods proved to be difficult for all credit managers.
  • Trends seen at mid-year 2016 continued throughout the remainder of the year. Spreads continued to narrow, which tested high-yield bond market managers. More than 94% of managers in this category ended the one-year period lagging the index’s performance of 17.13%.
  • The continued strength in the high-yield bond market had a positive spillover effect to the leveraged loan sector. The S&P/LSTA U.S. Leveraged Loan 100 Index posted a gain of 10.88% year-over-year. This outperformance proved difficult for actively managed senior loan funds over the one-year period, with nearly 82% of funds underperforming the benchmark.
  • Funds disappear at a significant rate. Over the 15-year period, more than 58% of domestic equity funds were either merged or liquidated. Similarly, almost 52% of global/international equity funds and 49% of fixed income funds were merged or liquidated. This finding highlights the importance of addressing survivorship bias in mutual fund analysis.

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