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SPIVA Latin America Mid-Year 2023

SPIVA U.S. Mid-Year 2023

SPIVA Australia Mid-Year 2023

SPIVA Institutional Scorecard Year-End 2022

Australia Persistence Scorecard: Year-End 2022

SPIVA Latin America Mid-Year 2023

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Joseph Nelesen, Ph.D.

Senior Director, Index Investment Strategy

S&P Dow Jones Indices

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Anu R. Ganti

Senior Director, Index Investment Strategy

S&P Dow Jones Indices

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Davide Di Gioia

Director, Index Investment Strategy

S&P Dow Jones Indices

Summary

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 periods.

Mid-Year 2023 Highlights

In the first half of 2023, Latin American active managers produced mixed performance.  The majority of active managers in most categories failed to outperform, especially over longer periods.  Only in Brazil Corporate Bond and Chile Equity funds were underperformance rates below 50% over the first half of 2023.

SPIVA Latin America Mid-Year 2023: Exhibit 1

Brazil

  • The S&P Brazil BMI increased 10.6% YTD. Funds in the Brazil Equity category climbed 9.8% and 10.9% on equal and asset-weighted bases, respectively.  Of funds in this category, 58.1% underperformed the benchmark over the first half of the year, with underperformance rates rising to 76.6%, 74.5% and 92.3% over the 3-, 5- and 10-year horizons, respectively.
  • Large-cap companies posted 10.0% in the first half of 2023, as measured by the S&P Brazil LargeCap. Funds in this category gained 7.1% on both equal and asset-weighted bases over the same period.  In Brazil Large-Cap funds, 77.9% underperformed the index.  Longer-term underperformance increased, with 82.4% of funds trailing over a 10-year period.
  • In contrast, small- and mid-cap companies performed relatively better, with the S&P Brazil MidSmallCap up 11.9% YTD. Funds within this category gained 14.3% and 11.6% on equal and asset-weighted bases, respectively.  Outperformance in this category was close to even, with 53.7% of active managers underperforming in H1 2023 and underperformance rates increasing over longer periods.
  • Less than one-third of Brazil Corporate Bond funds underperformed, while 79.4% of Brazil Government Bond funds underperformed their benchmark over a six-month period. Consistent with their equity peers, rates of underperformance increased over longer periods.

Chile

  • The S&P Chile BMI was up 7.2% YTD. However, only 35.6% of Chile Equity funds underperformed the index over the same period, with higher levels of underperformance over longer intervals.
  • Larger funds performed relatively better than smaller funds over the 1-, 3-, 5- and 10-year periods on an asset-weighted basis versus an equal-weighted basis, while smaller funds outperformed over the first half of 2023. The greatest difference was the one-year period, at 186 bps, as asset-weighted performance of Chile Equity funds was 20.7%, while equal-weighted was 18.9%.

Mexico

  • The S&P/BMV IRT increased 12.4% over the first half of 2023. For Mexico Equity fund managers, success was particularly elusive in the first half of 2023, as 90.7% of active managers underperformed the S&P/BMV IRT.  Although slightly below the H1 2023 level, underperformance rates increased over 3-, 5 and 10-year periods, to 70.7%, 77.3% and 85.0%, respectively.
  • Despite the underperformance of most active managers in the first half of the year, the survival rates of active funds in Mexico were the highest of Latin America, at 100.0%, 100.0%, 90.9% and 72.5% over the 1-, 3-, 5- and 10-year periods, respectively.
  • Smaller funds performed better than larger funds over all periods, especially over the six-month period, with asset-weighted Mexico Equity funds performance 180 bps below equal-weighted performance.

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SPIVA U.S. Mid-Year 2023

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Davide Di Gioia

Director, Index Investment Strategy

S&P Dow Jones Indices

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Anu R. Ganti

Senior Director, Index Investment Strategy

S&P Dow Jones Indices

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Craig Lazzara

Managing Director, Index Investment Strategy

S&P Dow Jones Indices

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Grace Stoddart

Quantitative Associate, Index Investment Strategy

S&P Dow Jones Indices

SUMMARY

The S&P 500® rose by 16.9% in the first six months of 2023, marking a sharp rebound from its decline of 18.1% in 2022. The rally extended to smaller stocks, although less emphatically, as the S&P MidCap 400® increased 8.8% and the S&P SmallCap 600® returned 6.0%. Fixed income markets also gained ground, despite the uncertain course of inflation, continued Fed tightening, an inverted yield curve, and ructions connected to the demise of several regional banks.

Although active managers in a number of categories were able to outpace their benchmarks in the first six months of the year, in our largest and most closely watched comparison, 60% of all active large-cap U.S. equity managers underperformed the S&P 500. As Exhibit 1 illustrates, a majority of large-cap managers outperformed in only 3 of the last 23 years (missing by a whisker in 2022). But active underperformance is not a coincidence, and, as we will discuss, some of the factors that made it close last year worked in the opposite direction in the first six months of 2023.

SPIVA U.S. Mid-Year 2023: Exhibit 1

For smaller-capitalization U.S. equity managers, first-half results were more promising. Only 48% of mid-cap managers lagged the S&P MidCap 400, while a creditable 28% of small-cap managers underperformed the S&P SmallCap 600. What was particularly striking about our U.S. equity results was the divergent performance of growth and value specialists. Only 13% of large-cap growth managers underperformed the S&P 500 Growth index, with similar success rates among their mid- and small-cap counterparts. Meanwhile, 90% of large-cap value managers lagged the S&P 500 Value index; most mid- and small-cap value specialists also underperformed, although by smaller margins.

Funds incorporating non-U.S. stocks produced mixed results: slight outperformance among larger-cap international managers and modest underperformance among smaller caps, with generally good results for emerging markets and disappointing performance for global funds. Fixed income results were likewise mixed. The bright spots for active fixed income came in the municipal and some investment grade categories. Most government funds lagged their benchmarks, as did 100% of Core Plus Bond funds and 89% of funds in the General Investment-Grade category.

As we've noted in previous reports, underperformance rates typically rise as time horizons lengthen. Exhibit 2 illustrates the point. In the first six months of 2023, 10 of the 39 categories in this report saw more than 75% of managers underperform their benchmark. Over a five-year horizon, 24 categories saw this level of underperformance, and after 15 years, the tally rose to 32 categories. Meanwhile, after 15 years, there were no categories in which the majority of active managers outperformed.

SPIVA U.S. Mid-Year 2023: Exhibit 2

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SPIVA Australia Mid-Year 2023

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Anu R. Ganti

Senior Director, Index Investment Strategy

S&P Dow Jones Indices

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Grace Stoddart

Quantitative Associate, Index Investment Strategy

S&P Dow Jones Indices

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Davide Di Gioia

Director, Index Investment Strategy

S&P Dow Jones Indices

The SPIVA Australia Scorecard measures the performance of Australian actively managed funds against their respective benchmarks over various time horizons, covering large-, mid- and small-cap equity funds, real estate funds and bond funds, providing statistics on outperformance rates, survivorship rates and fund performance dispersion.

Since the first publication of the S&P Indices Versus Active Funds (SPIVA) U.S. Scorecard in 2002, S&P Dow Jones Indices has been the de facto scorekeeper of the ongoing active versus passive debate. 

Mid-Year 2023 Highlights

A slim majority (55%) of Australian Equity General funds underperformed the S&P/ASX 200 in the first half of 2023. A higher percentage of funds underperformed their respective benchmarks in the International Equity General and Australian Equity A-REIT categories. Funds in the Australian Equity Mid- and Small-Cap and Australian Bonds categories had a better record: 48% and 45% underperformed their benchmarks, respectively.

SPIVA Australia Mid-Year 2023: Exhibit 1

  • Australian Equity General Funds: The S&P/ASX 200 gained 4.5% in the first half of 2023, while on average, Australian Equity General funds rose 4.6% on an equal-weighted basis and 4.7% on an asset-weighted basis. The underperformance rate over this period was 55%, with the proportion of underperforming funds increasing to 81%, 79% and 81% over the 5-, 10- and 15-year time horizons, respectively.
  • Australian Equity Mid- and Small-Cap Funds: The S&P/ASX Mid-Small rose 3.0% in the first half of the year, with Australian Equity Mid- and Small-Cap funds posting average gains of 3.7% on an equal-weighted basis and 5.1% on an asset-weighted basis. In this period, 48% of funds underperformed the benchmark, increasing to 64% over the 5-year horizon and 76% over the 10-year horizon.
  • International Equity General Funds: In the first six months of the year, 74% of funds in the International Equity General category underperformed the S&P Developed Ex-Australia LargeMidCap, which gained 18.1% over the period. International Equity General funds gained 16.1% and 14.8% on equal- and asset-weighted bases, respectively.  Underperformance rates increased over longer time horizons, with 95% of funds failing to beat the benchmark over 15 years.
  • Australian Bonds Funds: The S&P/ASX Australian Fixed Interest 0+ Index rose 1.7% in the first half of 2023, while Australian Bonds funds posted similar average returns of 1.7% on an equal-weighted basis and 1.9% on an asset-weighted basis. The proportion of active Australian Bonds funds that underperformed the benchmark in this period was 45%, with this percentage increasing to 48% over the three-year horizon and 62% over the five-year horizon.
  • Australian Equity A-REIT Funds: In the first half of 2023, 88% of funds in the Australian Equity A-REIT category underperformed the S&P/ASX 200 A-REIT, the highest rate of underperformance among reported categories. The S&P/ASX 200 A-REIT gained 3.9% over the period, while on average, active funds gained 2.8% on an equal-weighted basis and 2.5% on an asset-weighted basis.
  • Fund Survivorship: Liquidation rates were moderate in the first half of 2023, with the number of merged or liquidated funds in the single digits across all but one category. International Equity General funds had the highest attrition rate, with 3.5% of funds merged or liquidated over the six-month period.  The attrition rate increased over longer time horizons, with 57.7% of funds across all categories merged or liquidated in the 15 years between June 2008 and June 2023.

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SPIVA Institutional Scorecard Year-End 2022

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Tim Edwards

Managing Director and Global Head of Index Investment Strategy

S&P Dow Jones Indices

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Anu R. Ganti

Senior Director, Index Investment Strategy

S&P Dow Jones Indices

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Craig Lazzara

Managing Director, Index Investment Strategy

S&P Dow Jones Indices

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Davide Di Gioia

Director, Index Investment Strategy

S&P Dow Jones Indices

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Grace Stoddart

Quantitative Associate, Index Investment Strategy

S&P Dow Jones Indices

Summary

In this report, we add institutional accounts to the mutual funds analyzed in the S&P Indices versus Active (SPIVA) U.S. Scorecard.  We aim to provide the institutional community with the ability to judge managers’ true skill without the possible distortions that fees may create and to illustrate the similarities and differences between the performance of open-end funds and segregated institutional accounts across categories.

This edition of our scorecard shows that underperformance rates over the long term among institutional equity accounts are generally similar to those of mutual funds, with or without fees.  However, the importance of fees in determining underperformance rates varied considerably across asset classes, with a more significant difference in fixed income categories (see Exhibit 1).

Institutional SPIVA Scorecard: Exhibit 1

Report Highlights

Overall, 2022 continued to demonstrate better long-term net-of-fees performance in institutional accounts than in mutual funds, with lower 10-year underperformance rates in all 21 reported equity segments (see Section I and Exhibit 3) and a significant improvement in the cross-category average across fixed income categories (see Exhibit 1). 

Shorter-term horizons show a broader range of outcomes, with some pockets of admirable performance.  Within U.S. equity institutional accounts, only 39% of All Large-Cap Funds underperformed the S&P 500® in 2022 on a gross-of-fees basis, the lowest underperformance rate for the category since this report’s inception in 2015 (see Report 1, Section II).  Active fixed income managers posted even stronger relative performance in 2022, with majority outperformance reported in 12 out of 17 categories.  Notably, just 9% of managers in the inflation-linked category underperformed the iBoxx TIPS Inflation-Linked Index (see Report 11, Section II).

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Australia Persistence Scorecard: Year-End 2022

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Davide Di Gioia

Director, Index Investment Strategy

S&P Dow Jones Indices

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Tim Edwards

Managing Director and Global Head of Index Investment Strategy

S&P Dow Jones Indices

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Anu R. Ganti

Senior Director, Index Investment Strategy

S&P Dow Jones Indices

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Grace Stoddart

Quantitative Associate, Index Investment Strategy

S&P Dow Jones Indices

Summary

Can investment results be attributed to skill or luck?  Genuine skill is more likely to persist, while luck is random and fleeting.  Thus, one measure of skill is the consistency of a fund’s relative performance.  The Persistence Scorecard measures that consistency and shows that, regardless of asset class or style focus, active management outperformance is typically relatively short-lived.

Almost no Australian funds remained in the top performance quartile within their category over five consecutive years, and none did so in four out of five reported fund categories (see Report 2).

Lowering the bar from the top quartile to the top half did not result in a significant improvement in persistence.  As Exhibit 1 illustrates, the decline in persistence across categories was consistently worse than would be expected under a random distribution.

Exhibit 1 - Australia Persistence Scorecard: Year-End 2022

Report Highlights

  • A minuscule percentage of actively managed equity, A-REIT and fixed income funds succeeded in maintaining consistent outperformance relative to their peers over the three- and five-year periods ending in December 2022. Persistence of alpha was rare as well: 149 Australian Equity General funds (out of a total of 346) outperformed the S&P/ASX 200 as of December 2020, and only 28 of those 149 winners—less than one-fifth—managed to continue outperforming annually through December 2022 (see Report 1b).
  • Of the actively managed International Equity General and A-REIT funds whose 12-month performance placed them in in the top quartile of their respective category as of December 2020, not a single fund maintained its top-quartile performance over the next two 12-month intervals. Extending the analysis to five consecutive years made no difference (see Report 1a and Report 2).
  • There was less conclusive evidence for or against persistence when measured over non-overlapping three-year intervals, in which the cross-category average chance of a top-quartile fund remaining in the top quartile was 25%. Extending the horizon to two consecutive five-year periods improved the average slightly to 33% (see Reports 3 and 5).
  • Poor performance continues to be an indicator of future fund closures. Across the five categories reported by our scorecard, an unweighted average of 44% of actively managed funds whose performance placed them in the bottom quartile of performance in the five years ending in December 2017 were subsequently merged or liquidated over the next five years (see Report 5).

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