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Persistence Scorecard: Latin America October 2018

SPIVA^® Japan Mid-Year 2018

SPIVA^® India Mid-Year 2018

SPIVA^® U.S. Mid-Year 2018

SPIVA^® South Africa Mid-Year 2018

SPIVA - Oct 31, 2018

Persistence Scorecard: Latin America October 2018

Phillip Brzenk

Managing Director, Global Head of Multi-Asset Indices

S&P Dow Jones Indices

INTRODUCTION

When it comes to the active versus passive debate, one key dimension is the ability of a manager to deliver above-average returns over multiple periods. The ability to consistently outperform is one way to differentiate a manager’s skill from pure luck.
In this report, we measure the performance persistence of active funds in Brazil, Chile, and Mexico that outperformed their peers over consecutive three- and five-year periods. We also analyze their performance ranking transition matrices over subsequent periods.

SUMMARY OF RESULTS

Brazil

Exhibit 1 shows that top-performing equity fund managers in Brazil were mostly unable to replicate that performance in subsequent years. Just 2.56% of Brazil Equity Funds that were in the top quartile in June 2016 remained there in June 2018, with similar figures for the equity size categories (5.00% for Brazil Large-Cap Funds and 6.25% for Brazil Mid- /Small-Cap Funds). Top-quartile Brazil Corporate Bond Funds managers generally did well after the one-year period, but only 30.00% remained in the top quartile after two years.
Exhibit 2 extends the time horizon to five years, and we are able to see that for three of the five categories (Brazil Equity Funds, Brazil Mid- /Small-Cap Funds, and Brazil Government Bond Funds), no managers remained in the top quartile by June 2018.
As seen in the three-year quartile transition matrix in Exhibit 3, the most common occurrence for all four quartiles of Brazil Equity Funds was for them to be merged or liquidated in the second three-year period. For Brazil Equity Funds in the first quartile, only 25.00% remained in the first quartile in the second three-year period. Top-performing managers investing in Brazil Large-Cap Funds and Brazil Mid-/Small-Cap Funds didn’t fare much better than the broad equity managers, at 29.41% and 28.57%, respectively.

Chile

Of the 10 top-performing Chilean funds in June 2016, five remained in the top quartile after one year, while just one fund remained in the top quartile after two years.
The three-year transition matrix shows that 50.00% of the top quartile from the first three-year period ended up being placed in the first or second quartile for the second period. However, 40.00% of the funds from the top quartile were merged or liquidated in the second threeyear period. For the second, third, and fourth quartiles, funds transitioned to other quartiles or were merged or liquidated with no apparent trends.

Mexico

One-quarter (3 of 12) of top-performing Mexico Equity Funds remained in the top quartile after one year, dropping to 2 out of 12 funds after two years (see Exhibit 1). Over five consecutive one-year periods as shown in Exhibit 2, no funds remained in the top quartile by the end of the third year (June 2017). Looking at the top half of funds, 8.70% remained there after three years, dropping to 4.35% after four years.
Just one fund remained in the top quartile in the second three-year period, with most funds (8 of 11) moving to quartiles 3 or 4 (see Exhibit 3). In general, funds from quartiles 2 and 3 moved up to quartile 1, while most funds from quartile 4 remained there or moved up to quartile 3.

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SPIVA - Oct 28, 2018

SPIVA^® Japan Mid-Year 2018

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 experience publishing the report by expanding scorecard coverage into Australia, Canada, Europe, India, South Africa, Latin America, and Japan. While this report will not end the debate on active versus passive investing in Japan, we hope to make a meaningful contribution by examining market segments in which one strategy works better than the other.

The SPIVA Japan Scorecard reports on the performance of actively managed Japanese mutual funds against their respective benchmark indices over 1-, 3-, 5-, and 10-year investment horizons. In this scorecard, we evaluated returns of more than 798 Japanese large- and mid/small-cap equity funds, along with more than 656 international equity funds investing in global, international, and emerging markets, as well as U.S. equities.

Domestic Equity Funds: In the 12-month period ending June 2018, the S&P/TOPIX 150 and the S&P Japan MidSmallCap gained 8.4% and 11.1%, respectively. Over the same period, 71% and 83% of large- and mid/small-cap equity funds outperformed their respective benchmarks, with average returns of 11.7% and 21.3%, respectively.

Over the 10-year horizon, more than 50% and 60% of large- and mid/small-cap funds underperformed their benchmarks, respectively, on absolute and risk-adjusted bases. Nevertheless, the equal- and assetweighted fund returns exceeded their respective benchmarks’ returns over the same period.

The domestic equity funds’ performance was better than the foreign equity funds’ performance in comparison with their respective benchmark indices, and domestic equity funds also had higher survivorship rate than foreign equity funds across the different measured periods.

Foreign Equity Funds: Over the 12-month period ending June 2018, foreign equity funds recorded worse performance compared with their respective benchmarks than domestic equity funds. The majority of foreign equity funds underperformed their respective benchmarks and posted lower equal- and asset-weighted returns than their respective benchmarks. Emerging market equity funds recorded the worst relative performance, with 99% of funds underperforming the S&P Emerging BMI.

Over the 10-year period, the majority of funds underperformed their respective benchmarks across various foreign fund categories. More than 90% of global, international, and emerging equity funds did not survive or underperformed their respective benchmarks on absolute and risk-adjusted bases. More than 40% of foreign equity funds were merged or liquidated over the 10-year period, with international equity funds having the highest survivorship rate (72%).

Among various foreign fund categories, the U.S. and emerging equity funds had higher return spreads (over 100 bps) between equal- and asset-weighted returns in the 5- and 10-year periods, indicating that smaller funds in these two categories tended to perform better than larger funds. Over the 10-year period, asset- and equal-weighted average annualized fund returns were below their respective benchmarks’ returns by more than 300 bps across all foreign fund categories.

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SPIVA - Oct 22, 2018

SPIVA^® India Mid-Year 2018

Akash Jain

Director, Global Research & Design

S&P Dow Jones Indices

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 S&P Indices Versus Active Funds (SPIVA) U.S. Scorecard in 2002. Over the years, we have built on our experience publishing the report by expanding scorecard coverage into Australia, Canada, Europe, India, Japan, Latin America, and South Africa.
The SPIVA India Scorecard compares the performance of actively managed Indian mutual funds with their respective benchmark indices over 1-, 3-, 5-, and 10-year investment horizons. In this scorecard, we studied the performance of three categories of actively managed equity funds and two categories of actively managed bond funds over the 1-, 3-, 5-, and 10-year periods ending in June 2018.
Since the turn of the year, the Indian market has weathered headwinds, tackling a depreciating Indian rupee and a deteriorating current account deficit partially on account of sticky oil prices. It also witnessed notable developments such as the introduction of the long-term capital gains tax in the last annual budget and the style recategorization mandates for funds domiciled in India.
The first half of 2018 witnessed a stark spread in the performance of size indices, with a higher proportion of capital chasing large-cap stocks. The S&P BSE 100, the benchmark for Indian Equity Large-Cap funds, ended flat at 0.34% during this period, whereas the S&P BSE 400 MidSmallCap Index, the benchmark for Indian Equity Mid-/SmallCap funds, was down 12.74% during the same period.
Indian Equity Large-Cap Funds: The S&P BSE 100 ended in the oneyear period in black, returning 12.94%, with 88% of funds underperforming the benchmark. Over the 3-, and 10-year periods ending in June 2018, 78% and 63% of large-cap equity funds underperformed the S&P BSE 100, respectively. Large-cap funds witnessed low style consistency over the 1-year period, at 42%, and a low survivorship rate of 68% over the 10-year period. The assetweighted fund return was 51 bps higher than the equal-weighted fund return over the 10-year period, and the return spread between the first and the third quartile break points of the fund performance was 3.62% for the same period.

Indian Equity-Linked Saving Schemes (ELSS): Over the one-year period ending June 2018, the S&P BSE 200 returned 12.43%. Over the 5- and 10-year periods ending in June 2018, the majority of funds outperformed the benchmark, but over the 1- and 3-year periods, 84% and 62% of the funds underperformed the benchmark. The asset-weighted fund return was 40 bps higher than the equal-weighted fund return, and the return spread between the first and the third quartile break points of the fund performance was 3.8%.
Indian Mid-/Small-Cap Equity Funds: To align more closely with the style reclassification, the benchmark in this category was changed to the S&P BSE 400 MidSmallCap Index. The benchmark gained 6.08% in the one-year period ending June 2018. Across all the periods studied, the majority of the actively managed mid-/small-cap equity funds in India underperformed the benchmark. Over the 10-year period studied, the survivorship rate and style consistency were low, at 67% and 27%, respectively. For the same period, the asset-weighted fund return was 30 bps higher than the equal-weighted fund return, and the return spread between the first and the third quartile break points of the fund performance was 5.10%.
Indian Government Bond Funds: The S&P BSE Indian Government Bond Index returned 1.18% over the one-year period ending June 2018. Over the 1-, 3-, 5-, and 10-year periods, 83%, 75%, 82%, and 95% of the actively managed funds in this peer group underperformed the benchmark, respectively. Over the 10-year period ending in June 2018, survivorship rate and style consistency were at 32% and 29%, respectively. For the same period, the asset-weighted fund return was 50 bps higher than the equal-weighted fund return, and the return spread between the first and the third quartile break points of the fund performance was 1.29%.
Indian Composite Bond Funds: In the 12 months leading up to June 2018, the S&P BSE India Bond Index closed in the black, with a gain of 1.71%. Over the 1-, 3-, 5-, and 10-year periods ending in June 2018, 30%, 60%, 69%, and 95% of the actively managed funds in this category lagged the benchmark, respectively. Over the 10-year period, survivorship rate and style consistency were at 67% and 54%, respectively. For the same period, the asset-weighted fund return was 2 bps lower than the equal-weighted fund return, and the return spread between the first and the third quartile break points of the fund performance was 1.47%.
Average Fund Returns: In the one-year period ending in June 2018, both equal- and assetweighted returns of all the equity categories and Indian Government Bond category were sharply lower than their respective benchmarks. In contrast, only the Indian Composite Bond category delivered higher returns, in terms of equal- and asset-weighted average returns, than its respective benchmark over the same period. Over the 10-year period, the largest outperformance relative to its benchmark was witnessed in the Indian ELSS fund category, where asset-weighted returns were 1.35% higher than the benchmark.

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SPIVA - Oct 17, 2018

SPIVA^® U.S. Mid-Year 2018

SUMMARY

Despite the market turmoil seen in the first quarter of 2018, the U.S. equity market posted positive returns over the 12-month period ending June 30, 2018, with small-cap stocks leading the pack. The S&P SmallCap 600^® reported 20.50%, while the S&P 500^® and the S&P MidCap 400^® posted 14.37% and 13.50%, respectively.
During the one-year period ending June 30, 2018, the overall percentage of all domestic funds outperforming the S&P Composite 1500® increased (42.02%) compared with six months prior (36.57%).
Over the one-year period, 63.46% of large-cap managers, 54.18% of mid-cap managers, and 72.88% of small-cap managers underperformed the S&P 500, the S&P MidCap 400, and the S&P SmallCap 600, respectively.
Despite small-cap equity performing the best, more small-cap managers underperformed the S&P SmallCap 600 over the one-year period compared with results from six months prior.
Overall performance of active equity funds relative to their respective benchmarks over the medium term also improved, although the majority still underperformed their benchmarks. Over the five-year period, 76.49% of large-cap managers, 81.74% of mid-cap managers, and 92.90% of small-cap managers lagged their respective benchmarks.
Similarly, over the 15-year investment horizon, 92.43% of large-cap managers, 95.13% of mid-cap managers, and 97.70% of small-cap managers failed to outperform on a relative basis.
Growth style investing dominates, as growth managers across all three market cap ranges performed better than their core and value counterparts over the one-year period. Only 36.29%, 31.54%, and 42.05% of large-cap, mid-cap, and small-cap growth managers, respectively, underperformed their style-adjusted benchmarks. However, more growth funds underperformed their respective benchmarks compared with six months prior.

Over the long-term investment horizon, as measured by the 15-year period, relative underperformance of growth and value funds compared with their respective benchmarks did not differ significantly, indicating the cyclicality of style box investing. Across nine U.S. style categories, large-cap value was the best-performing category over the 10- and 15-year horizons, with 23.79% and 16.95% of managers outperforming the benchmark, the S&P 500 Value.
The headline international equity and emerging market equity indices remained positive in the 12- month period ending June 30, 2018. The S&P Global 1200 posted 11.57%, while the S&P Developed Ex-U.S. Small Cap, S&P/IFCI Composite and S&P 700 reported 11.43%, 8.80%, and 7.82%, respectively, over the same period.
Over the 1-, 3-, 5-, 10-, and 15-year investment horizons, managers across all international equity categories underperformed their benchmarks. Furthermore, the longer the time horizon, in general, the more funds underperformed. Compared with six months prior, more managers underperformed their benchmarks in the one-year investment horizon, especially in the international small-cap category.
The 10-Year U.S. Treasury yield curve remained flat. During the one-year period ending June 30, 2018, the majority of active fixed income managers investing in long-term government and longterm investment-grade bonds underperformed their benchmarks, but their relative performance over their benchmarks improved compared with six months prior. In contrast, funds investing in short- and intermediate-term investment-grade bonds outperformed their benchmarks.
Within the emerging market debt funds, 88.14% underperformed the benchmark in the one-year period, compared with 22.58% underperforming six months prior.
The majority of municipal funds outperformed over the 12-month period, despite having mixed 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, 58.58% of domestic equity funds, 53.66% of international equity funds, and an average of 52.16% of all fixed income funds were merged or liquidated. This finding highlights the importance of addressing survivorship bias in mutual fund analysis.

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SPIVA - Oct 15, 2018

SPIVA^® South Africa Mid-Year 2018

Zack Bezuidenhoudt

Director, Client Coverage Israel, Benelux, Nordics, and U.K.

S&P Dow Jones Indices

Andrew Innes

Head of Global Research & Design

S&P Dow Jones Indices

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 S&P Indices Versus Active (SPIVA) U.S. Scorecard in 2002. The SPIVA South Africa Scorecard measures the performance of actively managed, South African equity and fixed income funds denominated in South African rands (ZAR) against their respective benchmark indices over one-, three-, and five-year investment horizons.

MID-YEAR 2018 HIGHLIGHTS

The stock market rally in South Africa in 2017, buoyed by loosening monetary policy and new leadership expectations, failed to extend into 2018. The S&P South Africa Domestic Shareholder Weighted (DSW) Capped Index was up 7.6% year-over-year in June 2018, yet it was down 6.0% from the start of the year.

When comparing South African active equity fund manager performance to the capped benchmark over the one-year period, 51% failed to outperform. However, the asset-weighted performance of the category outperformed the same benchmark by 70 bps. This suggests larger funds may have benefited from their increased exposure to the largecap stocks that contributed most to market returns. Interestingly, 77% of active funds from the same category failed to outperform over the five-year period.

The strengthening of the South African rand in December 2017 in anticipation of Ramaphosa replacing Zuma as leader of the ruling African National Congress was short-lived. After the euphoria, the reality of the task ahead set in, and the U.S.-China trade war further exacerbated the local challenges facing the president. The GDP was revised to fall 2.6% on an annualized basis in the first quarter—the sharpest contraction in almost a decade. The subsequent 0.7% drop in the second quarter put the country in a technical recession.

The South African rand weakened through Q2 2018 alongside other emerging market currencies. From the perspective of a local investor, the depreciation contributed to higher returns offered across international markets. The S&P Global 1200 increased 16.7% in local currency terms between June 2017 and June 2018.

South African active funds investing in global equities underperformed by 3% on an assetweighted basis, and 82% of funds were unable to beat the S&P Global 1200 within the same oneyear period.

In an attempt to tackle the country’s rising debt, value-added tax (VAT) was increased 1% in South Africa earlier in 2018. Meanwhile, S&P Global Ratings affirmed South Africa’s sub-investment grade credit rating and kept its outlook stable with ‘BB’ and ‘BB+’ on its foreign and local currency debt, respectively. However, it was noted that the ratings could be lowered if the rule of law, property rights, or enforcement of contracts were to weaken. Hence, the controversial, populist policy of land expropriation without compensation has many concerned it will erode trust and dampen foreign investment. The S&P South Africa Composite Property Index fell sharply at the start of the year; the index was down 18.7% (in South African rands) over the first half of 2018.

The SPIVA South Africa Scorecard also covers the performance of actively managed fixed income funds that manage short-term bonds or diversified and aggregate bonds. In the one-year period ending in June 2018, short-term fixed income funds predominately outperformed the South Africa Short Term Fixed Interest (STeFI) Composite, with just 13% underperforming. These results are fairly typical for the group, since the benchmark does not reflect the opportunities available to fixed income managers through the corporate bond markets. Over the same 12-month period, 70% of active funds in the Diversified/Aggregate Bond category were unable to beat the S&P South Africa Sovereign Bond 1+ Year Index, which rose 10.1% (in local currency terms).

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