How do active managers stack up to passive benchmarks in the Middle East? S&P DJI’s Tim Edwards joins GCMA’s Michael Grifferty for a closer look at the latest SPIVA MENA results and explores what’s driving the growth of passive in the region.
[TRANSCRIPT]
Michael Grifferty:
For over two decades, S&P Dow Jones Indices has been the scorekeeper of the global active versus passive debate. S&P Indices versus Active, also known as SPIVA, measures actively managed funds against their benchmarks in markets around the world. My name is Michael Grifferty, and I'm here today with Dr. Tim Edwards, Global Head of Index Investment Strategy at S&P Dow Jones Indices, to talk about key findings of the most recent SPIVA MENA Scorecard. To start, Tim, can you explain what is SPIVA and what it tells us?
Tim Edwards:
So, first of all, SPIVA is an acronym. It stands for S&P Indices versus Active, and it's the brand name for a series of reports that we've been producing for over two decades now. The reports are rich in data, but the most commonly quoted statistic is a very simple one. We will look at all the actively managed funds in the region, for example, the Middle East. We'll categorize them, for example, into pan-Arab broad equity exposure, and then we will frequently or regularly report on how many of those actively managed funds delivered on the promise of beating the benchmark.
So, for example, our most recent data for the Middle East covers up to the end of 2024, and in that category, pan-Arab investing, 43% of actively managed funds underperformed the S&P Pan Arab Composite. Now that sounds like good news, and it is good news. That means that a majority outperformed the benchmark. However, we don't just show short-term statistics; we also show long term. In the long term, it's a different picture. 85% of actively managed funds in the region underperformed the S&P Pan Arab Composite, and in fact, over that time horizon of 10 years, around half of the funds available at the start of the period weren't even in existence by the end.
The purpose of the SPIVA reports, as well as to give people a pulse check on how active is doing in different markets, is actually to help inform the conversation. There are plenty of opinions on the active and the passive side, and there's a very vibrant discussion on what's better when and where. Our goal is just to bring data to that debate so it can be conducted in a more informed manner.
Michael Grifferty:
Tim, what's the current state of the passive investing environment in the Middle East and what factors are driving its growth?
Tim Edwards:
S&P Dow Jones Indices has had a presence in the Middle East for nearly two decades, and all through that time, we have been supporting the growth of index-based approaches to benchmarking, to investing and to trading. Passive investing overall in the Middle East is at a different stage to markets such as U.S. equities, but we are seeing growth, growth in both the number of products, growth in the number of users and also development and evolution of the capital markets. An index-based approach can make sense in a lot of different contexts, and we are increasingly seeing market participants in the Middle East take advantage of those different ways to engage with our indices.
Michael Grifferty:
Adoption of passive strategies varies from market to market. Do you see global trends and strategies that may apply in the Middle East, given its current state and trajectory?
Tim Edwards:
Globally, the growth in index-based approaches to investing and trading is perhaps one of the most important structural changes to the financial industry that I've observed in my career. The key, or a key feature that I'd like to highlight, is it's not just a question of people going from stock picking to long-term index investing; it's also how active investors engage in the markets. What we see today is investors using index-based products as tools to change their views. It's not so much a case of individual security selection or only security selection nowadays. One can also use index-based products to take broad exposures to different countries, different sectors, different industries, different kinds of equities, different kinds of bonds, and I think that's one of the most interesting features about how the market is changing, is people using index-based products for liquidity and to express active views.
Michael Grifferty:
Very insightful. Thank you very much for joining us.
Tim Edwards:
Thank you.
