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.
MID-YEAR 2019 HIGHLIGHTS
South African Equities
Over 62% of South African active equity funds failed to outperform the S&P South Africa Domestic Shareholder Weighted (DSW) Capped Index over the one-year period ending June 30, 2019. This figure rose to 74% when observed over the five-year period.
The South African equity market recovered in the first half of 2019, following a similar pattern seen more broadly in global equities after the sell-off at the tail end of 2018. The recovery was accompanied by a less optimistic local backdrop, with a volatile and depreciating South African rand and the fear of a ratings downgrade still looming. National elections in May saw the African National Congress retain control of the government. However, the party’s majority and voter turnout weakened as a result of the struggling economy, high unemployment, and further revelations of corruption.
Over the one-year period, active funds fared worse in general than the benchmark; the S&P South Africa DSW Capped Index rebounded to post a 1.7% gain, compared with 0.5% for active funds on an asset-weighted basis. The S&P South Africa 50 was up 5.3% over the same period, illustrating the general outperformance of large-cap companies over their smaller peers.
Many local S&P DJI factor-based indices also outperformed the S&P South Africa DSW Capped Index over the one-year period. Notable outperformers included the S&P Momentum South Africa and the S&P South Africa Composite Quality, Value and Momentum Multi-factor Index, outperforming by 8.5% and 6.3%, respectively.
The South African government outlined its commitment to mitigate greenhouse gas emissions and signed into law the Carbon Tax Act, which went into effect in June 2019. Interestingly, the S&P South Africa Composite Carbon Price Risk 2030 Adjusted Index outperformed its benchmark, with a return of 3.8% over the one-year period, as did the S&P South Africa DSW Capped Carbon Efficient Index and S&P South Africa DSW Capped ESG Index, which were up 4.8% and 2.0%, respectively.
Fewer than 11% of local funds invested in global equities managed to outperform the S&P Global 1200 over the one-year period. The benchmark outperformed active funds by an average of 6.5% when measured on an asset-weighted basis over the same period. Over the five-year period, the proportion of outperforming global equity funds was even lower, with only 3% beating the benchmark.
Across all categories analyzed in the SPIVA South Africa Scorecard, the top-performing benchmark was the S&P South Africa Sovereign Bond 1+ Year Index, posting a 11.25% gain over the one-year period. Within the Diversified/Aggregate Bond category, 82% of funds benchmarked against this index underperformed.
Over the one-year period, 94% of Short-Term Bond funds outperformed the South Africa Short Term Fixed Interest (STeFI) Composite. This outperformance persisted across the three- and five-year periods.