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.
- While the report will not end the debate on active versus passive investing in Australia, we hope to make a meaningful contribution by examining market segments in which one strategy works better than the other.
- The SPIVA Australia Scorecard reports on the performance of actively managed Australian mutual funds against their respective benchmark indices over 1-, 3-, 5-, 10-, and now 15-year investment horizons. In this scorecard, we evaluated returns of more than 786 Australian equity funds (large, mid, and small cap, as well as A-REIT), 378 international equity funds, and 109 Australian bond funds.
- In 2017, the majority of Australian funds in most categories underperformed their respective benchmarks, apart from the Australian A-REIT category. There is no consistent trend in the yearly active versus index figures, but we have consistently observed that the majority of Australian active funds in most categories fail to beat the comparable benchmark indices over long-term horizons.
- Over the 10-year period ending Dec. 29, 2017, more than 85% of international equity and Australian bond funds and more than 70% of Australian general equity and A-REIT funds underperformed their respective benchmarks on an absolute basis. However, only 40% of Australian small-cap funds lagged their benchmarks. Observations based on risk-adjusted returns were similar for most categories, with the result for the Australian bond funds being slightly more favorable.
- Australian General Equity Funds: Over the one-year period, the S&P/ASX 200 recorded a gain of 11.8%, while Australian large-cap equity funds posted a similar average return, with 59% of funds underperforming the S&P/ASX 200. Over the 3-, 5-, and 15-year periods, 67%, 63%, and 77% of funds in this category underperformed the benchmark, respectively.
- Australian Mid- and Small-Cap Equity Funds: In 2017, the S&P/ASX Mid-Small recorded a return of 21.2%, while Australian mid- and small-cap funds gained a smaller average return of 17.9%. Over the one- and three-year periods, 74% and 75% of funds in this category underperformed the benchmark, respectively, which was higher than the observations over the longer measured periods.
- International Equity Funds: The S&P Developed Ex-Australia LargeMidCap gained 14.5% in 2017 and international equity funds recorded a stronger return of 15.4%, despite 53% of funds underperforming the benchmark. This was in contrast to the observations for the longer periods (3-, 5-, 10-, and 15-year) when more than 80% of funds in this category lagged the benchmark.
- Australian Bond Funds: The Australian bond funds gained 3.2% in 2017, with 69% of them underperforming the S&P/ASX Australian Fixed Interest 0+ Index, which posted an annual return of 3.6%. Over the 5- and 10-year periods, 85% of Australian bond funds underperformed the benchmark. Noticeably, the relative performance of Australian bond funds appeared more favorable on a risk-adjusted basis, with 57%, 67%, and 70% of funds lagging the benchmark over the 1-, 5-, and 10-year periods.
- Australian A-REIT Funds: The S&P/ASX 200 A-REIT gained 5.7% in 2017 and the Australian AREIT funds delivered a higher average return of 6.8% over the same period. For the one-year period, 44% of funds in this category underperformed the benchmark, while 66%, 84%, and 78% of funds lagged the benchmark over the 3-, 5-, and 15-year horizons, respectively.
- Fund Survivorship: In 2017, 6.2% of Australian funds from all measured categories were merged or liquidated, with Australian large-cap funds disappearing at the fastest rate and Australian bond funds recording a 100% survival rate. However, over the 15-year horizon, Australian bond funds had the lowest survival rate of 33%, while the Australian mid- and small-cap funds had the highest rate of 59%. Funds across all categories had an overall survivorship rate of 51% over the 15-year period.
- Equal-Weighted Average Fund Returns: In 2017, funds in the international equity and Australian A-REIT categories delivered equal-weighted average returns that exceeded their respective benchmarks. In contrast, Australian mid- and small-cap equity funds underperformed the benchmark by 3.3% for the one-year period. Meanwhile, over the 15-year period, Australian midand small-cap equity funds recorded average excess returns of 2.9% per year, while international equity funds lagged the benchmark by 1.2% per year.
- Asset-Weighted Average Fund Returns: Aside from Australian mid- and small-cap funds, assetweighted average returns for all fund categories exceeded their respective equal-weighted average returns across all measured periods, indicating larger funds delivered higher returns than smaller funds in these categories.
