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 six-month and one-, three-, and five-year investment horizons.
MID-YEAR 2020 HIGHLIGHTS
South African Equity
Over 73% of South African Equity funds underperformed the S&P South Africa 50 over the first six months of the year. Comparing the same funds with a broader benchmark, namely the S&P South Africa Domestic Shareholder Weighted (DSW) Capped Index, only 36% of funds underperformed.
The contrast in fortunes of the two benchmarks continued to highlight the relative strength of South African large-cap stocks when compared with small and mid caps. The large-cap benchmark, the S&P South Africa 50, returned 4.5% more in the first six months of 2020 than South African Equity funds measured on an asset-weighted basis. This large-cap benchmark dominance is also reflected over the five-year period, when 95% of South African Equity funds underperformed. On an asset-weighted basis, these funds underperformed by 3.3% annually.
Fiscal stimulus was passed in April 2020 to help stave off the threat of a deepening economic contraction and interest rates were slashed by 2.75%. Despite these efforts to spur the economy, South African Equity funds struggled to recover from the COVID-19-related drawdowns of 2020. The 75th percentile of South African Equity funds was 3.9% lower over the first six months of the year.
The interquartile range, the difference between the first quartile and third quartile in Report 5, highlights the dispersion in performance considerably widened for South African Equity funds. During the first six months of 2020, the spread was 7.7% compared with 3.5% over the five-year period—showcasing that volatile markets affected performance dispersion for equity funds.
The continued weakening of the South African rand versus other major currencies helped Global Equity funds return an impressive14.8% over the six-month period on an asset-weighted basis. Despite this, 68% of Global Equity funds failed to keep pace with the S&P Global 1200 over the first six months of the year. This figure increased to 90% when measured over the five-year period. On an asset-weighted basis, Global Equity funds were 2% below the benchmark over the six-month period and 2.6% worse off over the five-year period.
Over the first six months of 2020, 31% of funds in the Diversified/Aggregate Bond category failed to beat the S&P South Africa Sovereign Bond 1+ Year Index. The same funds outperformed the benchmark by 1.2% on an asset-weighted basis. When extended to the five-year period, 49% of funds underperformed the benchmark.
In the Short-Term Bond fund category, 54% of managers were unable to outperform the South Africa Short Term Fixed Interest (STeFI) Composite over the first six months of the year. When compared with the longer-term five-year period, when 85% of funds outperformed the benchmark, it becomes clear that Short-Term Bond managers struggled to capitalize on the increased volatility and difficult market conditions brought on by the global COVID-19 pandemic.
Comparing fixed income and equity funds, the H1 2020 market turmoil took a greater toll on the latter. Except for the S&P South Africa 50, the gains over the five-year period were completely eroded by the global COVID-19 crisis, whereas both the fixed income benchmarks and average fund managed to keep their head above water during the first six months of 2020.