The S&P Indices Versus Active (SPIVA) Latin America Scorecard compares the performance of actively managed mutual funds in Brazil, Chile, and Mexico to their benchmarks over 1-, 3-, 5-, and 10-year time horizons.
Active managers’ performance relative to their benchmark indices showed discrepancies across individual countries. The report shows that active managers in Brazil, especially in the large-cap segment, were well prepared for the strong rally in the Brazilian equities market. Meanwhile, 2019 proved challenging for both Mexican and Chilean equity managers, despite the different market conditions seen in the two countries: Mexico’s benchmark outperformed while Chile's benchmark ended the year down.
Brazil
- 2019 was the fourth consecutive year of double-digit returns in the Brazilian equity market, with the S&P Brazil BMI rising 16.10% during the second half of the year and 35.09% for the full year. Mid- and small-cap companies (as measured by the S&P Brazil MidSmallCap) led the way, up 55.21%, while large-cap companies (as measured by the S&P Brazil LargeCap) returned 26.35%.
- Inflation was controlled throughout 2019 but rose in December, closing the year at 4.31%. Furthermore, growth expectations for the year shifted lower in July 2019, from 1.6% to 0.8%, and the forecast was revised to 1.1% on Dec. 19, 2019.1 During the second half of the year, the National Monetary Council reduced the reference rate on four different occasions, decreasing the rate by a total of 200 bps, and the institution cut the monetary policy interest rate, SELIC, from 6.00% to 4.50%. As a result, corporate bonds were up 2.5% (as measured by Anbima Debentures Index) and government bonds were up 4.6% (as measured by Anbima Market Index) over the second half of the year. For all of 2019, corporates gained 8.6%, while government bonds were up 12.8%.
- The one-year period saw most active fund managers underperforming their benchmarks in four of the five categories (see Report 1). However, it was a good year for Brazil Large-Cap Fund managers, with 88.57% beating the benchmark over the one-year horizon and 66.67% over the three-year horizon. Active managers from the other categories fared poorly relative to their respective benchmarks over the 1-, 5-, and 10-year periods.
- Over the 10-year horizon, larger funds performed better than smaller funds, except in the Brazil Government Bond Funds category, when comparing performance on an equal-weighted (Report 3) versus asset-weighted basis.
Chile
- The Chilean equity market posted negative returns for the second consecutive year, returning -8.83% over the 12-month period ending in December 2019, as measured by the S&P Chile BMI. Volatility affected the country's markets in the second half of the year, mainly after the social outbreak of Oct. 18, 2019.
- The majority (80%) of active equity fund managers underperformed the S&P Chile BMI over the one-year period, with the median fund underperforming the benchmark by 2.91%.
- Fund performance worsened over longer time horizons, as 98% and 100% of funds underperformed the benchmark over the 5- and 10-year periods, respectively. Funds in Chile posted poor survival rates—56% and 50% of funds were merged or liquidated over the 5- and 10-year periods, respectively, as of December 2019.
- Smaller funds performed relatively better than larger funds in all time horizons when comparing average fund performance on an equal-weighted versus asset-weighted basis.
Mexico
- With the effects of weakened domestic economic growth outweighed by lessened commercial tension between the U.S. and China, the Mexican equity market ended the second half of 2019 on a positive note, with the S&P/BMV IRT increasing 2.2%; for 12-month period, the index was up 7.9%, a remarkable result compared with 2018's 12-month return of -13.62%.
- More than 70% of active managers underperformed the S&P/BMV IRT over all periods observed. The majority of active managers were unable to anticipate the up market and repeat their relative success seen in the year-end 2018 report. Over the 12-month period ending in December 2019, 71% of funds underperformed the benchmark, with a median underperformance of 3.11%. The longer the time horizon, the worse managers in this category fared: over the 10-year period, 87% of funds underperformed the benchmark, with a median underperformance of 2.10%.
- Mexico saw the highest survival rate for equity funds in Latin America for most of the observed periods, with exception of the 10-year horizon. Over the 12-month period, the survival rate was reduced by 2% from the 100% observed in the mid-year 2019 report, finalizing the year at 98%. The three- and five-year survival rates were above 96% and 88%, respectively.
