EXECUTIVE SUMMARY
- This report adds institutional accounts to the mutual funds analyzed in the S&P Indices Versus Active (SPIVA) U.S. Scorecards. We also examine the impact of fees.
- Overall, underperformance among institutional equity accounts was not meaningfully different from that reported for mutual funds. For example, 77.97% of large-cap mutual fund managers and 73.21% of institutional accounts underperformed the S&P 500® on a gross-of-fees basis over the 10-year horizon.
- 2018 proved challenging for institutional equity managers: the majority of U.S. equity funds in most categories, and most international equity funds in all categories, underperformed last year.
- Mid-cap growth funds offered the best relative performance among equity categories in 2018; an impressive 81.60% outperformed the S&P MidCap 400® Growth’s 10.34% decline last year.
- Institutional fixed income managers showed strength in many categories in 2018; the majority outperformed in 11 out of 17 categories, gross-of-fees.
- Highlighting how difficult it can be to beat benchmarks over longer horizons, the majority of institutional managers in all but one equity category underperformed over the 10-year horizon, gross-of-fees. International small-cap funds offered the exception.
- However, incorporating a profitability screen in international small caps would have removed this exception. Most (52.46%) institutional international small-cap funds would have underperformed the S&P Developed Ex U.S. SmallCap Select Index’s 10.76% annualized total returns over the 10-year period ending Dec. 31, 2018.
- Active equity managers focusing on market segments perceived to be relatively inefficient appeared to charge higher fees than their peers in other categories. There were typically greater differences between the gross- and net-of-fees relative performance figures in domestic and international small-cap categories, as well as for emerging market funds.
- Institutional fixed income funds typically performed better than their benchmarks, grossof-fees, compared with their mutual fund counterparts. However, California municipal debt mutual funds posted the best relative performance figures over the 10-year horizon, gross-offees.
- Fees appeared to have a sizeable impact on the relative performance of mutual funds in the mortgage-backed securities (MBS) and municipal bond categories.
- For example, while 64.81% of MBS mutual funds underperformed, gross-of-fees, over the 10-year horizon, 42.59% underperformed net-of-fees. This 22.22 percentage point difference was one of the largest across any fixed income category over the 10-year horizon.
- We report only gross-of-fees returns for institutional fixed income funds in the global corporate investment-grade and global corporate high-yield categories. Only three funds in each category posted a complete history of net returns and assets under management over the 10-year horizon.
