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SPIVA® Australia Year-End 2019

Australian Persistence Scorecard: December 2019

SPIVA® Canada Mid-Year 2019

Latin America Persistence Scorecard: December 2019

U.S. Persistence Scorecard: December 2019

SPIVA® Australia Year-End 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. We have built on our 17 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 829 Australian equity funds (large, mid, and small cap, as well as A-REIT), 420 international equity funds, and 115 Australian bond funds.
  • In 2019, benchmark-relative performance of Australian funds was better than in 2018 for the majority of fund categories. In the Australian Equity General, Australian Equity Mid- and Small-Cap, and Australian Equity A-REIT categories, 61.5%, 46.9%, and 65.2% of funds were outperformed by their benchmarks, respectively.

SPIVA Australia Year-End 2019 - Exhibit 1

  • Australian Equity General Funds: In 2019, the S&P/ASX 200 recorded a total return of 4%, while Australian large-cap equity funds recorded a net return of 21.9% and 21.8% on equal- and asset-weighted bases, respectively. On an absolute and risk-adjusted basis, 61.5% and 67.9% of funds did not outperform the benchmark, respectively, and 1.8% of them were liquidated over the one-year period. Over the 5- and 10-year periods, 80.8% and 83.9% of funds underperformed the S&P/ASX 200 on an absolute basis, respectively.
  • Australian Equity Mid- and Small-Cap Funds: The S&P/ASX Mid-Small gained 6% in 2019, while Australian mid- and small-cap funds recorded larger net returns of 25.6% and 23.3% on equal- and asset-weighted bases, respectively. On an absolute and risk-adjusted basis, 46.9% and 43.1% of funds lagged the benchmark, respectively, with 3.8% of them being liquidated. Over the 5- and 10-year periods, 69.7% and 49.1% of funds underperformed the S&P/ASX Mid-Small on an absolute basis, respectively.
  • International Equity GeneralFunds: In 2019, more than 70% of international equity funds underperformed the S&P Developed Ex-Australia LargeMidCap on absolute and risk-adjusted International equity general funds posted an equal-weighted average gain of 24.6%, while the S&P Developed Ex-Australia LargeMidCap recorded a gain of 28.1%. Over the 5- and 10-year periods, 86.6% and 93.5% of funds in this category failed to beat the S&P Developed Ex-Australia LargeMidCap respectively.
  • Australian Bond Funds: The S&P/ASX Australian Fixed Interest 0+ Index gained 2% in 2019, while the Australian bond funds gained 6.4% and 6.5% on an equal- and asset-weighted basis, respectively. On an absolute basis, 72.2% of Australian bond funds underperformed the benchmark, while 59.7% of funds underperformed on a risk-adjusted basis.  Over 10-year period, 85.0% and 66.7% of funds in this category did not beat the benchmark on an absolute and risk- adjusted basis, respectively.
  • Australian Equity A-REIT Funds: The S&P/ASX 200 A-REIT recorded a total return of 4% in 2019, while the Australian A-REIT funds gained a net return of 18.6% and 18.4% on equal- and asset-weighted bases, respectively. Of Australian A-REIT funds, 65.2% and 43.5% underperformed the benchmark on an absolute and risk-adjusted basis, respectively. Over the 10- year period, 82.0% and 71.9% of funds in this category underperformed the benchmark on an absolute and risk-adjusted basis, respectively.
  • Fund Survivorship: As of year-end 2019, 3.5% and 3% of Australian funds from all measured categories were merged or liquidated over the one- and three-year periods, respectively. Over the longer periods, the survivorship rate dropped to 78.5% and 58.7% over the 5- and 10-year periods, respectively, with Australian A-REIT funds having the highest survival rates for both periods.
  • Average Fund Returns: The Australian mid- and small-cap funds recorded lower asset-weighted returns than equal-weighted returns for all measured periods, indicating that smaller funds in this category tended to perform better than their larger This trend has been consistently observed in the SPIVA Australia Scorecards.

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Australian Persistence Scorecard: December 2019

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Priscilla Luk

Managing Director, Global Research & Design, APAC

EXECUTIVE SUMMARY

  • While comparing active funds against a benchmark index is a typical practice used to evaluate their performance, persistence is an additional test that reveals 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 threeand five-year periods, and we analyze their transition matrices over subsequent periods.
  • A minority of Australian high-performing funds persisted in outperforming their respective benchmarks or consistently stayed in their respective top quartiles for three consecutive years, and even fewer maintained these traits consistently for the five-year period.

  • Out of the top-performing funds in the 12-month period ending June 2015, only 2.1% persistently maintained a top-quartile rank, and 1.7% consistently beat their benchmarks in the following four consecutive years.
  • Over two successive three- and five-year periods, the majority of outperforming funds failed to persistently beat their respective benchmarks, and most funds in the top quartile did not stay there consistently.
  • Out of the 164 Australian funds that ranked in their respective top quartile in the five-year period ending June 2014, fewer than half of them remained in the top two quartiles, and 13.4% were liquidated or merged in the subsequent five-year period.
  • Out of the 269 Australian funds that outperformed their respective benchmark in the five-year period ending June 2014, only 21.2% continued to outperform their respective benchmark in the following five-year period, and 15.6% of them were liquidated.
  • Overall, the majority of Australian fund categories showed weak performance persistence in top-performing funds across the three- and five-year periods

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SPIVA® Canada Mid-Year 2019

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Berlinda Liu

Director, Global Research & Design

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Phillip Brzenk

Senior Director, Strategy Indices

SUMMARY

  • The Canadian equity markets rebounded in the first half of 2019, as the S&P/TSX Composite rose by 16.2%. Small caps led the way, with the S&P/TSX Completion (17.2%) slightly outpacing the S&P/TSX 60 (15.9%).
  • Active managers were unable to keep pace with the market—the majority of funds underperformed their respective benchmarks in the 12-month period ending June 30, 2019, across all seven categories.
  • Over the one-year horizon, more than 85% of Canadian active equity managers underperformed their benchmarks. Managers that focus on the small-cap equity space fared among the worst, as 88% of Canadian Small-/Mid-Cap managers underperformed the S&P/TSX Completion.
  • Compared with the previous report (from year-end 2018), fund managers in the three Canadian equity categories fared relatively worse. Dividend & Income Equity fund managers did particularly poorly, with underperformance rising from 65% to 88% as of June 30, 2019.

SPIVA Canada Mid-Year 2019 Exhibit 1

  • International Equity provided the best relative performance out of all seven categories over the 12- month period ending June 30, 2019; 46% of fund managers beat the category benchmark.
  • The 10-year performance results demonstrate the difficulty that active managers had in beating their respective benchmarks over the long term. Over 88% of Canadian Equity managers underperformed the S&P/TSX Composite over the 10-year period ending in June 2019. Things were particularly bleak for the Dividend & Income Equity fund category, as no manager was able to outperform the benchmark over the 10-year period.
  • Long-term survivorship rates paint a dreary picture—less than half (46%) of all Canadian Equity funds in the eligible universe 10 years ago remained active as of June 2019. Similar figures are seen for the U.S. Equity (48%) and Canadian Focused Equity (35%) categories.

    • Beginning with this report, style consistency is computed and shown in Report 2. This is an important metric because style drift can affect asset allocation decisions. For each category, we track how many funds changed their style at any time during each respective measurement period. Style consistency was relatively high for the 12-month period ending June 2019, with the figure being 100% for four of the seven categories; the lowest consistency was Canadian Equity (96%).

  • Over the long term (10 years), style consistency was materially low for several categories, including Canadian Small-/Mid-Cap Equity (74%), Canadian Dividend & Income Equity (73%), and Canadian Focused Equity (64%). The other four categories showed consistency figures of 90% or higher.
  • Larger funds (by net assts) did relatively better than smaller funds over the one-year period; asset-weighted category returns were relatively higher than the corresponding equal-weighted returns for six of the seven categories.

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Latin America Persistence Scorecard: December 2019

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Phillip Brzenk

Senior Director, Strategy Indices

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María Sánchez

Associate Director, Global Research & Design

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 skill from 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 2 highlights the inability of top-performing equity fund managers to replicate their success in subsequent years—regardless of size focus, by the fourth year, no fund remained in the top quartile.

  • Fixed income painted a slightly different picture than equities. While the majority of managers were not able to maintain consistent outperformance for five years in a row, 28% of corporate bond managers and 8% of government bond managers were able to do so.
  • The five-year transition matrix highlights that top-quartile funds that remained active had a higher likelihood of remaining in the top quartile in the second five-year period than of moving down to the other quartiles for all-cap equity (29%), large-cap equity (38%), and government bond funds (54%).
  • However, funds in Brazil had a high frequency of closures—even for equity funds in the top quartile in the first five-year period, 38% were eventually merged or liquidated in the second five-year period. Thus, overall, a fund had a higher chance of shutting down than of remaining in the top quartile.
  • Top-quartile fund managers focused on mid- and small-cap equities fared particularly poorly, as no manager remained in the top quartile in the second five-year period—most funds moved to the bottom two quartiles (44% total) or shut down (44%).

Chile

  • Exhibit 2 demonstrates the lack of persistence by equity managers in Chile—just 27% of top-performing funds in the first 12-month period repeated their outperformance in the subsequent period. This rate dropped to 9% in the third period and to 0% in the fourth and fifth periods.
  • The five-year transition matrix shows top-quartile managers in the first period that remained live in the second period were more likely to stay in the first quartile than move to quartiles two to four. However, even for the top-performing quartile, a significant percentage of funds (44%) eventually shut down in the second period.

Mexico

  • The five-year performance persistence test shows that top-quartile managers had difficulty replicating their outperformance in future years. After one year, just 18% of managers remained in the top quartile, and by year two, the percentage dropped to zero.
  • Exhibit 5 shows that top-quartile managers in the first five-year period were more likely to move to the bottom quartile (38% of managers) in the second five-year period than to any other quartile. Just as many managers from the second- and third-quartile categories moved to the top quartile as the ones that remained at the top.
  • As observed in the SPIVA Latin America Scorecard, Mexico had a higher rate of survivorship than Brazil and Chile. The five-year transition matrix shows that all funds that ended up closing during the second period came from the worst-performing quartiles of the first period. This highlights that poor relative performance typically precedes a fund closing down.

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U.S. Persistence Scorecard: December 2019

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Berlinda Liu

Director, Global Research & Design

Contributor Image
Phillip Brzenk

Senior Director, Strategy Indices

SUMMARY OF RESULTS

  • The S&P Persistence Scorecard attempts to distinguish a manager’s luck from skill. One key measure of successful active management lies in the ability of a manager to outperform his peers consistently.
  • This report’s results show that, irrespective of asset class or style focus, few fund managers consistently outperformed their peers.
  • For funds categorized as top performers in September 2017, 47% maintained their top-quartile performance the subsequent year. However, there was a dramatic fall in persistence afterward—just 8% of domestic equity funds remained in the top quartile in the three-year period ending September 2019. This result (8%) is consistent with the notion that historical performance is only randomly associated with future performance.
  • Smaller-cap equity funds recorded lower persistence compared with results from six months prior—mid-cap persistence dropped to 7% from 14%, and small-cap funds sank to 11% from 23%.

  • An inverse relationship exists between the time horizon length and the ability of top performing funds to maintain their success. Less than 3% of equity funds in all categories maintained their top-quartile status at the end of the five-year measurement period. In fact, no large-cap fund was able to consistently deliver top-quartile performance by the end of the fifth year.
  • Report 3 shows that over 44% of top-quartile large-cap managers from the first three-year period continued to show top performance in the second three-year period—a figure higher than what would be expected at random. Top-quartile mid- (30%) and small-cap (18%) funds did not fare as well.
  • For the five-year transition matrix, 32% of top-performing equity funds in the first period remained in the top quartile in the second period. However, 20% of top-quartile funds also moved to the lowest quartile, and an additional 8% of funds were merged or liquidated, highlighting that it was almost as likely for a top-quartile fund to falter than it was to remain in the top quartile.
  • Fourth-quartile funds were most likely to be merged or liquidated across categories over the five-year horizon. This supports the view that underperformance typically precedes a fund’s closure.
  • Top-quartile mortgage-backed securities funds demonstrated the best performance persistence among fixed income funds; 23% of managers maintained their top-performing status during the three-year period ending September 2019. However, this is a decline from the results six months prior (38%).
  • Over longer horizons, most fixed income categories showed no persistence: Of the 13 fixed income categories, seven showed no managers remaining in the top quartile over the five-year horizon.

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