In This List

SPIVA® Institutional Scorecard Year-End 2018

SPIVA® Australia Mid-Year 2019

Persistence Scorecard: March 2019

Persistence of Australian Active Funds Year-End 2018

Risk-Adjusted SPIVA® Scorecard Year-End 2018

SPIVA® Institutional Scorecard Year-End 2018

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Berlinda Liu

Director, Global Research & Design

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Hamish Preston

Associate Director, U.S. Equity Indices

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.

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SPIVA® Australia Mid-Year 2019

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Priscilla Luk

Managing Director, Global Research & Design, APAC

SUMMARY

  • S&P Dow Jones Indices has been the de facto scorekeeper of the ongoing active versus passive debate since the first publication of the SPIVA U.S. Scorecard in 2002. Over the years, we have built on our 16 years of experience publishing the report by expanding scorecard coverage into Australia, Canada, Europe, India, Japan, Latin America, and South Africa.
  • The SPIVA Australia Scorecard reports on the performance of Australian active funds against their respective benchmark indices over 1-, 3-, 5-, 10-, and 15-year periods.1 In this scorecard, we evaluated returns of over 854 Australian equity funds (large, mid, and small cap, as well as A-REIT), 436 international equity funds, and 116 Australian bond funds.
  • Benchmark indices for all fund categories rebounded in the first half of 2019, though the majority of funds in all categories failed to deliver better returns than their respective benchmark indices, and they recorded smaller average returns than their respective benchmarks.
  • There is no consistent trend in the yearly active versus index figures, but we have consistently observed underperformance for the majority of Australian active funds in most categories over the longer periods (5-, 10-, and 15-year periods).

SPIVA Australia Mid-Year 2019 Exhibit 1

  • Australian Equity General Funds: The S&P/ASX 200 had a strong rebound in the first half of 2019, however the majority of Australian large-cap equity funds delivered smaller returns than the benchmark. In the 12 months ending June 2019, Australian large-cap equity funds recorded an average return of 6.3%, well below the gain of 11.6% by the S&P/ASX 200. Of the funds in this category, 93.2% and 96.3% failed to outperform the benchmark on absolute and risk-adjusted bases, respectively.
  • Australian Equity Mid- and Small-Cap Funds: The S&P/ASX Mid-Small gained 2.9% in the 12 months ending June 2019, while the Australian mid- and small-cap funds recorded a smaller average return of 1.8%, with 60.5% of funds in this category failing to beat the benchmark on both absolute and relative bases over the same period. Over the 5- and 10-year periods, 75.2% and 46.7% of funds underperformed the S&P/ASX Mid-Small on an absolute basis, respectively.
  • International Equity General Funds: The international equity market also enjoyed a strong rebound in the first half of 2019. In the one-year period ending June 2019, the S&P Developed Ex-Australia LargeMidCap gained 12.1%, while international equity funds marked an average gain of 9.2%, with 72.9% of funds underperforming the benchmark. Over the 5- and 10-year periods, about 82.8% and 92.1% of funds underperformed the S&P Developed Ex-Australia LargeMidCap, respectively.
  • Australian Bond Funds: The S&P/ASX Australian Fixed Interest 0+ Index recorded a gain of 9.5% in the one-year period ending June 2019, while Australian bond funds gained 7.9% and 7.3% on equal- and asset-weighted bases, respectively. On an absolute basis, 84.6% of Australian bond funds underperformed the benchmark, while only 69.2% of funds underperformed on a riskadjusted basis. Over the 10-year period, 72.4% and 60.3% of funds underperformed the S&P/ASX Australian Fixed Interest 0+ Index on absolute and risk-adjusted bases, respectively.
  • Australian Equity A-REIT Funds: The S&P/ASX 200 A-REIT posted a strong one-year return of 19.3% as of June 2019. Within the Australian A-REIT fund category, 71.8% of funds posted a smaller gain than the benchmark, with equal- and asset-weighted average returns of 14.4% and 13.9%, respectively. Over the 5- and 10-year periods, over 80% of funds underperformed the S&P/ASX 200 A-REIT on an absolute basis.
  • Fund Survivorship: In the 12 months ending June 2019, 5.5% of Australian funds from all measured categories were merged or liquidated, with Australian A-REIT funds recording the highest survival rate of 97.2%. In contrast, more than 6% of funds from the Australian Equity General and Australian Equity Mid- and Small-Cap categories disappeared over the same period. Over longer horizons, only 78.5%, 59.6%, and 52.9% of funds across all categories survived the 5-, 10-, and 15- year periods, respectively.
  • Average Fund Returns: Funds in the Australian Equity General and International Equity General categories recorded lower equal-weighted than asset-weighted returns across all measured periods, indicating funds with larger assets tended to perform better than their peers with smaller assets. In contrast, smaller funds in the Australian Equity Mid- and Small-Cap category tended to deliver better performance than those with larger assets.

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Persistence Scorecard: March 2019

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Berlinda Liu

Director, Global Research & Design

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Hamish Preston

Associate Director, U.S. Equity Indices

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Aye Soe

Managing Director, Global Head of Product Management

SUMMARY OF RESULTS

  • One key measure of successful active management lies in the ability of a manager or a strategy to outperform their peers repeatedly. Consistent success is the one way to differentiate a manager’s luck from skill.
  • The S&P Persistence Scorecard shows that few funds consistently outperformed their peers; 11.4% of domestic equity funds remained a top-quartile fund over the three-year period ending March 2019.
  • Smaller-cap equity funds recorded better performance persistence compared with results from six months prior; 23.3% (versus 7.7%) and 13.7% (versus 4.0%) of small- and mid-cap funds, respectively, remained in the top quartile during the three-year period ending March 2019.
  • The ability of top-performing funds to maintain their status typically fell over longer horizons. For example, zero large-, mid-, or multi-cap funds maintained their top-quartile status at the end of the five-year measurement period.

  • Top-performing funds were more likely to become the worst-performing funds than vice versa over the five-year horizon. While 15.3% of bottom-quartile domestic equity funds moved to the top quartile, a greater percentage (31.5%) of top-quartile funds moved to the bottom quartile during the same period.
  • Fourth-quartile funds were most likely to be merged or liquidated in nearly every category. This supports the view that underperformance typically precedes a fund’s closure.
  • Top-quartile mortgage-backed securities funds offered the best performance persistence among fixed income funds; 38.5% maintained their status during the three-year period ending March 2019.
  • A turnaround in the bond market’s outlook appeared to wrong-foot many top-quartile fixed income managers. While many top performers—as of March 2017—maintained their status the following year, there was a dramatic fall in persistence after March 2018.
  • Over longer horizons, the majority of fixed income categories showed no persistence. Investment-grade intermediate funds (2.1%) and general municipal debt funds (10.53%) offered the exceptions over the five-year horizon.

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Persistence of Australian Active Funds Year-End 2018

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Priscilla Luk

Managing Director, Global Research & Design, APAC

EXECUTIVE SUMMARY

  • While comparing active funds against respective benchmark indices is a typical practice to evaluate their performance, persistence is an additional test that can reveal fund managers’ skills in different market environments.
  • In this report, we measure the performance persistence of active funds that outperformed their peers and benchmarks over consecutive three- and five-year periods, and we analyze their transition matrices over subsequent periods.

  • Overall results suggested only a minority of Australian highperforming funds persisted in outperforming their respective benchmarks or consistently stayed in their respective top quartiles for three or five consecutive years. Among top-quartile funds, 9.7% and 2.2% consistently maintained top-quartile rankings over consecutive three- and five-year periods, respectively. Top-quartile funds in the Australian Bonds fund category had the lowest turnover over both periods.
  • The transition matrix, which tracks the trajectory of funds in each quartile, suggested that top-quartile funds in the Australian Bonds fund category had the highest persistence, while Australian Equity Mid- and Small-Cap funds had the least persistence over two nonoverlapping three- and five-year periods.
  • Of outperforming funds, 6.5% and 1.3% consistently beat their benchmarks consecutively over three and five years, respectively. The Australian Equity A-REIT category had the highest persistence in terms of its outperforming funds (15.8%) over three consecutive years, but no fund categories showed high persistence in their outperforming funds over five consecutive years.
  • Among Australian funds that outperformed their benchmarks, only 16.8% and 21.8% managed to outperform over two successive three- and five-year periods, respectively.

MEASURING PERFORMANCE PERSISTENCE OF AUSTRALIAN ACTIVE FUNDS

Research suggests that actively managed winning streaks are often short lived. Twice a year, S&P Dow Jones Indices releases the Persistence Scorecard, which tracks the performance consistency of U.S. actively managed funds over consecutive years. We have consistently observed that relatively few U.S. active funds can stay at the top for years. In this report, we use similar matrices to measure the persistence of Australian active funds that outperform their benchmarks and their peers over threeand five-year periods. Our study follows the fund categories and benchmarks defined in the SPIVA® Australia Scorecard, a biannual report that tracks the number of active Australian funds that beat their comparable benchmarks over short- and long-term horizons.

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Risk-Adjusted SPIVA® Scorecard Year-End 2018

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Berlinda Liu

Director, Global Research & Design

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Hamish Preston

Associate Director, U.S. Equity Indices

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Aye Soe

Managing Director, Global Head of Product Management

SUMMARY

Risk and return are two sides of the same coin. Beyond relative performance of funds, market participants are also interested in the risks taken to achieve those returns. This motivated us to examine the performance of actively managed funds on a risk-adjusted basis.

The Risk-Adjusted SPIVA Scorecard measures the performance of actively managed funds against their benchmarks on a risk-adjusted basis, using net-of-fees and gross-of-fees returns. We use return/volatility ratios to evaluate performance. Volatility is computed by taking the standard deviation of monthly returns. Our goal is to establish whether actively managed funds are better at risk management than passive indices, using net-of-fees and gross-of-fees returns.

After adjusting for risk, the majority of actively managed domestic funds in all categories underperformed their benchmarks, on a net-of- fees basis, over mid- and long-term investment horizons.

Risk-Adjusted SPIVA Scorecard Exhibit 1

Although the risk-adjusted performance of active funds improved compared with their benchmarks on a gross-of-fees basis, real estate funds (over the five-year period) was the only category that generated a higher ratio than the benchmark. Overall, most active domestic equity managers in most categories underperformed their benchmarks, on a gross-of-fees basis.

The majority of international equity funds also generated lower risk-adjusted returns than their benchmarks, when using net-of-fees returns. International Small-Cap Funds were the only category that outperformed the benchmark on a risk-adjusted basis over the 10-year period, on a gross-of-fees basis.

When using net-of-fees returns, the majority of actively managed fixed income funds underperformed across all three investment horizons on a risk-adjusted basis. The exceptions were Investment-Grade Long Funds and Loan Participation Funds (over the 5- and 10-year periods), as well as Government Long Funds and California Municipal Debt Funds (over the 10-year period).

Unlike their equity counterparts, most fixed income funds outperformed their respecitve benchmarks gross of fees. This highlights how the role of fees in fixed income fund performance was especially critical. More active fixed income managers underperformed the benchmark on a risk- adjusted basis over the long term (15 years) than in the intermediate term (5 years).

Asset-weighted return/risk ratios of active managers were higher than the equal-weighted ratios, indicating that larger firms have taken on better-compensated risk than smaller ones. When comparing average ratios against their benchmarks, all domestic equity categories had lower ratios over all investment horizons when they were equally weighted on a net-of-fees basis. However, asset-weighted ratios of Real Estate Funds (over the 5-, 10-, and 15-year periods), Large-Cap Value Funds (over the 10- and 15-year periods), Mid-Cap Growth Funds (over the 5-year period), and Mid- Cap Value Funds (over the 10-year period) were higher than the benchmarks.

Looking at gross-of-fees versus net-of-fees returns, most fund categories produced higher return/risk ratios than their benchmarks if they were asset-weighted on a gross-of-fees basis. However, their outperformance diminished quickly once fees were accounted for, especially in domestic equity and international equity funds.

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