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SPIVA® India Year-End 2020

SPIVA® MENA Scorecard

SPIVA® South Africa Year-End 2020

Risk-Adjusted SPIVA® Scorecard: Year-End 2020

SPIVA® Europe Year-End 2020

SPIVA® India Year-End 2020

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Akash Jain

Associate Director, Global Research & Design

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Arpit Gupta

Senior Analyst, Global Research & Design

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 December 2020.

The strong rebound that began in early Q2 of calendar year 2020 continued into H2 2020, with the S&P BSE 100 finishing the six-month period up 36.48%. During this recovery period, the majority of the equity active funds in the Indian Equity Large-Cap and ELSS categories lagged their respective benchmarks (see Exhibit 1).

In the second half of 2020, the asset-weighted returns were lower than their respective benchmark returns in each of the Indian Equity categories: large-cap funds (by 273 bps), ELSS funds (by 318 bps) and mid- and small-cap funds (by 230 bps). 

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SPIVA® MENA Scorecard

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Andrew Innes

Head of EMEA, Global Research & Design

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Andrew Cairns

Associate Director, Global Research & Design

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Alberto Allegrucci

Senior Research Analyst, Global Research & Design

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.  The SPIVA MENA Scorecard measures the performance of actively managed MENA equity funds denominated in local currencies against the performance of their respective S&P DJI benchmark indices over 1-, 3-, 5-, and 10-year investment horizons.

YEAR-END 2020 HIGHLIGHTS

The global pandemic of 2020 did not leave the Middle East and North Africa (MENA) economies unscathed.  With oil revenues accounting for a large portion of the GDP of MENA countries, the economic slowdown as a result of the COVID-19 pandemic significantly affected the region.  The impact on benchmark and fund returns, however, was not homogenous across regions.

MENA

  • Of MENA Equity funds, 68% underperformed the S&P Pan Arab Composite over the one-year period. This number rose to 93% over the 10-year period.
    • The unique market conditions of 2020 did not seem to provide widespread opportunities for active managers across MENA Equity funds. The S&P Pan Arab Composite LargeMidCap Index return was 1.4 percentage points higher than that of MENA Equity funds (on an asset-weighted average basis).  When measured against the broader S&P Pan Arab Composite, this difference increased further to 3.2 percentage points.
    • The outlook for MENA Equity funds was no better when measuring performance on a risk-adjusted basis. Over all time periods, more than 90% of funds underperformed both benchmarks after adjusting for risk.

GCC

  • Funds focused on the Gulf Cooperation Council (GCC) experienced similar misfortunes, with 58% underperforming the S&P GCC Composite over the one-year period.
    • Further highlighting the struggles of GCC Equity funds, when measured on an asset-weighted basis, the funds trailed the S&P GCC Composite benchmark by 4.8 percentage points over the one-year period. The benchmark outperformance continued over the 10-year period by 0.9 percentage points, annually.
    • Over the three- and five-year periods, 80% and 94% of GCC Equity funds underperformed the benchmark on a risk-adjusted basis, respectively.

Saudi Arabia

  • Saudi Arabia Equity funds bucked the regional one-year trend, posting the strongest benchmark-relative outperformance of the three categories. For the one-year period, 23% of Saudi Arabia Equity funds underperformed the S&P Saudi Arabia.  This outperformance figure flips the opposite way when the time horizon is extended to 10 years, when 78% of Saudi Arabia Equity funds underperformed the benchmark.
    • Saudi Arabia Equity Funds obtained a remarkable 10.7% asset-weighted average return during 2020, beating the benchmark by 3.9 percentage points.
    • The bottom quartile Saudi Arabia Equity fund posted a return of 10.1% for the one-year period, 3.3 percentage points above the benchmark.

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SPIVA® South Africa Year-End 2020

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Andrew Innes

Head of EMEA, Global Research & Design

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Andrew Cairns

Associate Director, Global Research & Design

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. 

YEAR-END 2020 HIGHLIGHTS

South African Equity

Over 78% of South African Equity funds underperformed the S&P South Africa 50 over the one-year period.  Comparing the same funds with a broader benchmark, namely the S&P South Africa Domestic Shareholder Weighted (DSW) Capped Index, 44% of funds underperformed.  Over the five-year time horizon, the percentage of funds that underperformed the S&P South Africa 50 and the S&P South Africa DSW Capped Index increased to 95% and 60%, respectively.

The struggle for South African Equity funds to keep pace with the S&P South Africa 50 is further highlighted by the fact that even funds in the 75th percentile performed 0.9% below the benchmark for the one-year period.  Furthermore, on an asset-weighted basis, South African Equity funds trailed the same benchmark by 3% annualized over five years.  Even on a risk-adjusted basis, the same funds had a lower return-to-volatility ratio over the three- and five-year periods.

South African Equity funds had a poor start to 2020, falling 10% by the end of February.  Things did not improve with the onset of COVID-19, as March 2020 saw the single biggest monthly loss in the past five years, with the asset-weighted South African Equity fund category and the S&P South Africa DSW Capped Index dropping 16.5% and 16.1%, respectively.  This was followed by an immediate rebound in April 2020, when they posted their single biggest monthly gains in the past five years of 14.5% and 15.0%, respectively.  Over the course of 2020, South African Equity funds and benchmarks continued to recover slowly and, aided by news of a vaccine in November, these funds were able to post positive returns for the year on an asset-weighted basis.

Global Equity

Global Equity funds were likely aided by a significant depreciation in the South African rand during the first four months of 2020, as they were able to avoid large drawdowns seen elsewhere and ultimately posted much stronger results than their domestic-focused counterparts, finishing the year up 19.7% on an asset-weighted basis.  Despite this strong performance, they still trailed the S&P Global 1200 benchmark by 1.7%, and 66% of funds were unable to beat the benchmark over the one-year period.  Over the five-year time horizon, the outlook was no better, as on an asset-weighted basis, the funds trailed the benchmark by 2.16%, annually, and 93% of funds were unable to beat the benchmark. 

Fixed Income

Over the one-year period, 84% of Diversified/Aggregate Bond funds failed to beat the S&P South Africa Sovereign Bond 1+ Year Index.  Short-Term Bond funds fared better, with only 17% failing to beat the benchmark.  However, when measuring outperformance on a risk-adjusted basis, we saw that more than 92% of Short-Term Bond funds failed to beat the benchmark over the one-year period.  The return-to-volatility ratio for the benchmark was also far greater than that of asset-weighted Short-Term Bond funds, indicating that for each unit of risk, the benchmark was able to generate greater returns.

In the battle of allocation between fixed income and equity, we saw that fixed income funds were able to deliver higher annualized asset-weighted returns over the medium- and long-term periods than South African Equity funds.  Importantly, over the same periods the return-to-volatility ratio for fixed income funds was many multiples higher, indicating that, despite posting a higher return, fixed income funds were far less risky than South African Equity funds. 

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Risk-Adjusted SPIVA® Scorecard: Year-End 2020

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Berlinda Liu

Director, Global Research & Design

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Gaurav Sinha

Managing Director, Head of Americas Global Research & Design

Since 2002, SPIVA scorecards have shown that active funds typically underperform their benchmarks on an absolute return basis. However, active funds could compare favorably to passive investments after adjusting for volatility, if lower active returns were a consequence of risk reduction.

The Risk-Adjusted SPIVA Scorecard considers this possibility by comparing the risk-adjusted returns of actively managed funds against their benchmarks on a net-of-fees and gross-of-fees basis. We use the standard deviation of monthly returns as a measure of risk and evaluate performance by comparing return/volatility ratios.

After a relatively quiet decade following the Global Financial Crisis, volatility returned with a vengeance in 2020. Backed by fiscal and monetary stimulus, the S&P 500® gained 18.4% on the year, though this bout of volatility and positive returns did little to help the case for active management. After adjusting for volatility, the majority of actively managed domestic funds across market cap segments underperformed their benchmarks on a net-of-fees basis over mid-and long-term investment horizons.

Exhibit 1

Mid-cap and small-cap growth funds were interesting exceptions in a sea of underperformance. Over a five-year period, nearly two-thirds of funds in both categories outperformed, whereas only one-quarter of large-cap growth funds outperformed. Active managers focusing on smaller-capitalization companies may have skewed their portfolios toward the market-leading larger companies recently, but this peculiarity faded away over the long term. Over the 10- and 20-year periods, mid-cap and small-cap growth funds reverted to form and matched their large-cap compatriots, with fewer than 10% managing to outperform in any of the three categories.

Naturally, the risk-adjusted performance of active funds improves on a gross-of-fees basis, but even then, outperformance is scarce. Viewed over a five-year period, a majority of funds in only 6 of the 18 domestic equity categories tracked were able to outperform their benchmarks. Over a 20-year window, only two domestic equity categories showed the majority of funds outperforming their benchmarks.

As in the U.S., the majority of international equity funds across all categories generated lower risk-adjusted returns than their benchmarks when using net-of-fees returns over the previous five-year period. International equity funds also matched their domestic peers over the longer term, as fewer than 15% surpassed their benchmarks over a 20-year horizon. On a gross-of-fees basis, the only bright spot was international small-cap funds in the 10-year window, of which 64% cleared their hurdle rate.

When using net-of-fees risk-adjusted returns, the majority of actively managed fixed income funds in most categories underperformed across all three investment horizons. The only exceptions were government long funds and investment-grade long funds over the 5- and 10-year periods.

The importance (and performance-sapping nature) of fees is well highlighted when analyzing fixed income fund performance in a low-yield world. A respectable 9 of the 14 fixed income categories showed a majority of funds outperforming their benchmarks on a gross-of-fees basis over the past 15 years.

On a net-of-fees basis, asset-weighted return/volatility ratios for active portfolios were higher than the corresponding equal-weighted ratios, indicating that larger firms have taken on higher-compensated risk than smaller ones. On an asset-weighted basis, large-cap value, small-cap value, mid-cap core, multi-cap value, and REIT funds were the only domestic equity categories to provide better return/volatility ratios than the benchmark over 20 years. On an equal-weighted measure, this fell to just three categories: large-cap value, small-cap value, and real estate funds.

Most fund categories produced higher return/volatility ratios than their benchmarks, gross of fees, on an equal-weighted basis. However, their outperformance diminished once fees or fund size were accounted for, especially in domestic and international equity funds. In general, equal-weighted return/volatility ratios improved more than the corresponding asset-weighted ratios when fees were ignored, indicating that fees play a more prominent role in smaller funds' performance.

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SPIVA® Europe Year-End 2020

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Andrew Innes

Head of EMEA, Global Research & Design

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Andrew Cairns

Associate Director, Global Research & Design

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Alberto Allegrucci

Senior Research Analyst, Global Research & Design

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.  The SPIVA Europe Scorecard measures the performance of actively managed European equity funds denominated in euro (EUR), British pound sterling (GBP), and other European local currencies against the performance of their respective S&P DJI benchmark indices over 1-, 3-, 5-, and 10-year investment horizons.

YEAR-END 2020 HIGHLIGHTS

The year 2020 proved to be a tumultuous one for European investors, with COVID-19 and subsequent national lockdowns grinding the economies of Europe to a halt.  The uncertainty surrounding the pandemic provided an ideal opportunity for active fund managers to prove their worth in what was an extremely volatile period.

  • Of active euro-denominated Europe Equity funds, 37% underperformed the S&P Europe 350® in 2020. This figure rose to 75% over 5 years and 86% over 10 years.

As the first wave of COVID-19 peaked in March 2020, the S&P Europe 350 benchmark saw its biggest single-month loss in more than 10 years.

  • Active fund investors were not immune to the troubles; on an asset-weighted basis Europe Equity funds also suffered their largest single-month loss in more than 10 years. This tail-risk event was similarly seen in 13 of the remaining 22 fund categories and 19 of the 22 benchmarks.

The sharp drawdown was followed by a modest recovery, aided by monetary and fiscal stimulus packages swiftly assembled by central banks and governments.  As the first wave of COVID-19 began to settle, markets calmed and grew at a steady pace over the summer months.  News of a vaccine broke in early November and immediately sent markets soaring.

  • The renewed optimism saw the majority of fund categories and benchmarks post their largest single-month gains in the past 10 years. Out of 23 categories, 14 exhibited their largest single-month return in over 10 years when measured on an asset-weighted basis.  The same was true for 17 out of 23 benchmarks.

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