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SPIVA® South Africa Year-End 2019

SPIVA® Latin America Scorecard Year-End 2019

SPIVA® Europe Year-End 2019

SPIVA® Australia Year-End 2019

Australian Persistence Scorecard: December 2019

SPIVA® South Africa Year-End 2019

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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 2019 HIGHLIGHTS

South African Equities

Over 68% of South African active equity funds underperformed the S&P South Africa 50 over the one-year period. The same equity funds fared better when compared to the broader benchmark; 56% outperformed the S&P South Africa Domestic Shareholder Weighted (DSW) Capped Index in 2019.

The difference in fund performance between the two aforementioned benchmarks reflected the strength of South African large-cap stocks in relation to mid and small caps. The large-cap benchmark, the S&P South Africa 50, was up 10.4% in 2019. It outperformed the S&P South Africa DSW Capped Index by over 3% annualized over each of the one-, three-, and five-year periods, demonstrating the tendency of the largest 50 stocks to outperform in recent years.

Local market gains in 2019 were generally buoyed by the global rally following the late 2018 selloff and were not widely viewed as a reflection of economic strength. In fact, the IMF concluded in November 2019 that South Africa faced persistently weak economic growth, deteriorating debt, and major difficulties in its state-owned enterprises.

S&P DJI’s series of factor, smart beta, and sector indices within South Africa had a disperse range of outcomes in 2019. Momentum strategies led the field in factors, with the S&P Momentum South Africa up 28.5% over the calendar year. The S&P Enhanced Value South Africa Composite Index trailed behind and was down 3.8% over the same period. The S&P South Africa DSW Materials Index posted a strong return of 32.5%, while the S&P South Africa DSW Information Technology Index lost ground and fell 10.6%. Interestingly, the S&P South Africa DSW Capped Carbon Efficient Index outperformed its benchmark by 2.6% in the year that saw the South African government introduce the Carbon Tax Act.


Global Equities

South African funds with a global portfolio saw higher returns than those with a domestic focus when measured on an asset-weighted basis—the Global Equity category returned 21.8% for the one-year period. This growth was more than matched by the S&P Global 1200 in local ZAR, with 73% of funds in this category unable to beat it in the year. On an asset-weighted basis, these funds underperformed the global benchmark by 3% in 2019. Similarly, over a three- and five-year period, the annualized asset-weighted returns were below that of the benchmark, by 3% and 2.5%, respectively.


Fixed Income

Over 73% of funds in the Diversified/Aggregate Bond category were unable to surpass the one-year performance of the S&P South Africa Sovereign Bond 1+ Year Index, which posted gains of over 10% in 2019. This was higher than the benchmark’s annualized five-year return of 7.7%. Over both time periods, the returns from the S&P South Africa Sovereign Bond 1+ Year Index outstripped those from the broad local equity index (S&P South Africa DSW Capped Index).

In the Short-Term Bond funds category, 92% of managers were able to outperform the South Africa Short Term Fixed Interest (STeFI) Composite. The ability of these managers to outmaneuver the benchmark persisted across the three- and five-year periods.

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SPIVA® Latin America Scorecard Year-End 2019

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María Sánchez

Associate Director, Global Research & Design

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.

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SPIVA® Europe Year-End 2019

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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 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 2019 HIGHLIGHTS

  • Over the one-year period, 71% of active European equity funds denominated in euros underperformed the S&P Europe 350®.
    • On an asset-weighted basis, the benchmark outperformed funds in this category by 1.5%.
  • 2019 was a buoyant year for European equities following the sharp downturn that occurred at the end of 2018. Markets proved more resilient in the face of continued trade disputes between the U.S. and China, while a stimulus package from the European Central Bank in September 2019 gave equities a further boost.
    • Over the one-year period, 18 of the 23 equity benchmarks measured in the SPIVA Europe Scorecard posted returns of over 20%.
    • The asset-weighted returns of active fund managers were lower than those of their benchmarks in 15 of the 23 categories.
  • Active fund managers investing in single countries in the eurozone largely failed to outperform their benchmarks over the one-year period.
    • Notably, managers with a focus on French, Italian, Dutch, or Spanish Equity underperformed their benchmark by 5% or more on an asset-weighted basis.
    • Only German equity managers were able to beat their benchmark, with funds in this category outperforming the S&P Germany BMI by 90 bps on an asset-weighted basis.
  • Emerging market equity funds domiciled in Europe had a more favorable year compared with 2018.
    • Funds denominated in GBP and EUR outperformed their benchmark by 64% and 50% in 2019, respectively.
    • Over the 10-year period, the outperforming emerging market funds were still heavily outnumbered, with 15% and 4% of GBP- and EUR-denominated funds beating their benchmark, respectively.
  • European active fund managers with a U.S. or global focus were predominantly outpaced by the S&P 500® and S&P Global 1200, respectively, over both short- and long-term periods in EUR terms.
    • In 2019, 81% of euro-denominated U.S. equity funds underperformed their benchmark. Over the 10-year period, this rate increased to over 98%.  The S&P 500 was up 34% in EUR terms in 2019 and outperformed the U.S. Equity fund category by 3.6% on an asset-weighted basis.  Over the 10-year period, this figure rose to 3.8% per year.
    • Similarly, the S&P Global 1200 was up 31% in EUR in 2019, and only 18% of European active funds focused on global equities were able to beat this performance. Fewer than 2% of funds in this category beat the benchmark over the 10-year period.
  • Active UK equity funds had a better run than most in 2019; 73% of funds in this category beat the S&P United Kingdom BMI.
    • The majority of funds in both the UK Equity and UK Large-/Mid-Cap Equity categories outperformed their benchmarks in 2019. However, over the same period, 60% of UK Small-Cap equity funds underperformed their benchmark. Furthermore, less than a third of funds outperformed over the 10-year period in each of these three categories.
    • The strength seen in active UK equity funds did not apply to most of the other GBP-denominated fund categories, implying that UK fund managers may generally only have had an advantage on home soil.
      • Two-thirds of pound sterling-denominated active equity funds in the Europe Ex-UK, Global, and U.S. Equity categories underperformed their benchmarks in 2019.

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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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