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SPIVA® U.S. Mid-Year 2019

SPIVA® India Mid-Year 2019

SPIVA® Japan Mid-Year 2019

SPIVA® South Africa Mid-Year 2019

SPIVA® Europe Mid-Year 2019

SPIVA® U.S. Mid-Year 2019

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Berlinda Liu

Director, Global Research & Design

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Phillip Brzenk

Senior Director, Strategy Indices

After a tumultuous fourth quarter in 2018, the S&P 500® rebounded in the first half of 2019 to return 18.5%—the best performance for the first half of a year since 1997. The S&P MidCap 400® (18.0%) and the S&P SmallCap 600® (13.7%) also posted double-digit gains. For the 12-month period ending in June, the S&P 500 and the S&P Composite 1500® were up 10.4% and 9.3%, respectively. Over the same period, the S&P MidCap 400 gained a modest 1.4% while the S&P SmallCap 600 fell 4.9%. This performance divergence highlights the dominance of large-cap securities in driving the recent market performance. Cyclical sectors such as Information Technology (27.1%) and Consumer Discretionary (21.8%) led the charge in the first half of 2019, while Health Care (8.1%) and Energy (13.1%) lagged.

For the one-year period ending in June 2019, 71% of domestic equity funds underperformed the S&P Composite 1500, slightly more than the previous report’s 69%. Additionally, the majority of large-cap (70%) and multi-cap (72%) funds lagged their benchmarks. In contrast, mid-cap and small-cap active funds performed relatively better; approximately 64% of active managers in both categories beat their benchmarks for the one-year period.

Growth-style investing led the recovery in the first half of 2019, which led to growth outpacing value for the last 12 months. However, most domestic large-cap growth managers were unable to keep up with the performance of the S&P 500 Growth (12%) for the one-year period ending in June. In fact, compared with results from six months prior, a higher percentage of large-cap growth funds underperformed (going from 60% to 70%) by an equal-weighted average of 1.5%.

Unlike their large-cap counterparts, most mid- and small-cap growth managers found success; 88% of mid-cap growth managers beat the S&P MidCap 400 Growth (up 1.9%) and 85% of small-cap growth managers beat the S&P SmallCap 600 Growth (down 2.3%) for the one-year period ending in June 2019. The magnitude of outperformance was significant, as the equal-weighted average one-year returns of the mid- and small-cap growth categories were 11.5% and 5.3%, respectively—an excess of 9.6% and 7.6% relative to their respective category benchmarks. Fund size was not a factor, as results were similar using asset-weighted returns for each category. The outsized success of growth managers in the two smaller-cap categories and the divergence in returns observed across the size segments for the last year point to potential “size creep” into large-cap securities by those managers in order to boost returns.

Over longer-term horizons (10 and 15 years), at least 80% of active managers underperformed their respective benchmarks across all domestic equity categories.

The S&P 700, a barometer for international equities, rose over 14% in the first six months of 2019, despite continued trade tensions involving major world economies (U.S. and China, Brexit). The strong market returns did not translate to success for international equity managers, as the majority of international and emerging market funds in all categories underperformed their benchmarks for the one-year period ending in June 2019—72% of international funds lagged the S&P 700 and 55% of emerging market managers failed to beat the S&P/IFCI Composite.

For the first time since 2007, the U.S. yield curve inverted in March, as measured by the relative yields of the 3-month Treasury bill and 10-year Treasury bond. While the Fed refrained from cutting its target rate in the first half of 2019, the June meeting minutes showed increased concern for the U.S. economic outlook. Unsurprisingly, the minutes bolstered expectations for rate cuts in the second half of the year. The majority of fixed income active funds underperformed their benchmarks, with global income funds (at 44%) the lone exception. Of particular note, all government long funds and loan participation funds underperformed their respective benchmarks over the one-year horizon. This is in stark contrast to results from the report six months prior, when just 17% of government long funds and 57% of loan participation funds underperformed.

In the government and investment-grade fund categories, short- and intermediate-term funds did relatively better than those focused on the long end of the curve. The longer-term, 15-year figures show that most active fixed income managers underperformed their benchmarks.

Survival rates of funds remained low across all categories; 57% of domestic equity funds, 49% of international equity funds, and 52% of all fixed income funds were merged or liquidated over the 15-year horizon.

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SPIVA® India Mid-Year 2019

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Arpit Gupta

Senior Analyst, Global Research & Design

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Akash Jain

Associate Director, Global Research & Design

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 S&P Indices Versus Active (SPIVA) U.S. Scorecard in 2002. Over the years, we have built on our experience publishing the report by expanding scorecard coverage into Australia, Canada, Europe, India, Japan, Latin America, and South Africa.
  • The SPIVA India Scorecard compares the performance of actively managed Indian mutual funds with their respective benchmark indices over 1-, 3-, 5-, and 10-year investment horizons. In this scorecard, we studied the performance of three categories of actively managed equity funds and two categories of actively managed bond funds over the 1-, 3-, 5-, and 10-year periods ending in June 2019.
  • The S&P BSE 100 and S&P BSE 200 rallied in the first half of 2019. In the same period, active funds in the Indian Equity Large-Cap and Indian Equity Mid-/Small-Cap categories managed to recoup some lost ground by outperforming their respective benchmarks, while the bond categories noticed further underperformance against their respective benchmarks.
  • Benchmarks for both bond categories witnessed strong rebounds in the one-year period ending in June 2019, aided by the Reserve Bank of India softening policy rates. The S&P BSE India Government Bond Index and the S&P BSE India Bond Index returned 14.25% and 13.37%, respectively, in the one-year period ending in June 2019.

    • Indian Equity Large-Cap Funds: Over the one-year period, the S&P BSE 100 surged 9.79%, with 76.67% of funds underperforming the benchmark. In fact, across all the periods studied, the majority of actively managed large-cap equity funds in India underperformed the S&P BSE 100. Large-cap funds witnessed a low style consistency of 16.67% over the 10-year period and a low survivorship rate of 68.33%. The asset-weighted fund return was 85 bps higher than the equalweighted fund return over the 10-year period, and the return spread between the first and the third quartile breakpoints of the fund performance was 2.98% for the same period.
    • Indian ELSS: Over the one-year period, the S&P BSE 200 ended in the black, returning 8.24%, with 80.95% of funds underperforming the benchmark. Over the three- and five-year periods ending in June 2019, 83.33% and 51.35% of funds underperformed the benchmark, respectively. Over the 10-year horizon, the return spread between asset-weighted and equal-weighted returns was only 18 bps. The return spread between the first and the third quartile breakpoints of the fund performance was 3.20%.
    • Indian Mid-/Small-Cap Equity Funds: The benchmark for Indian Mid-/Small-Cap Equity funds, the S&P BSE 400 MidSmallCap Index, was down 6.68% during the one-year period ending in June 2019. Only 18.92% of the active funds underperformed the benchmark over the one-year period. Over the 10-year period, the survivorship rate and style consistency were low, at 64.37% and 26.44%, respectively. For the same period, the asset-weighted fund return was 22 bps higher than the equal-weighted fund return, and the return spread between the first and the third quartile breakpoints of the fund performance was 3.94%.
    • Indian Government Bond Funds: The S&P BSE Indian Government Bond Index returned 14.25% over the one-year period ending in June 2019. Over the 1-, 3-, 5-, and 10-year periods ending in June 2019, 76.92%, 73.17%, 84.62%, and 87.72% of the actively managed funds in this category lagged the benchmark, respectively. Over the 10-year period ending in June 2019, survivorship rate and style consistency were at 35.09% and 31.58%, respectively. For the same period, the asset-weighted fund return was 13 bps higher than the equal-weighted fund return, and the return spread between the first and the third quartile breakpoints of the fund performance was 1.83%.
    • Indian Composite Bond Funds: In the 12-month period ending in June 2019, the S&P BSE India Bond Index closed in the black with a gain of 13.37%. Across all the observed periods, more than 94% of the funds underperformed the benchmark. Over the 10-year period, survivorship rate and style consistency were at 73.42% and 67.09%, respectively. For the same period, the assetweighted fund return was 38 bps higher than the equal-weighted fund return, and the return spread between the first and the third quartile break points of the fund performance was 1.53%.
    • Average Fund Returns: In the one-year period ending in June 2019, the equal- and assetweighted returns of Indian ELSS and Indian Composite Bond fund categories were sharply lower than their respective benchmarks. In contrast, only the Indian Equity Mid-/Small-Cap category delivered higher equal- and asset-weighted average returns than its benchmark over the same period. Over the 10-year period, the largest outperformance relative to its benchmark was witnessed in the Indian Equity Mid-/Small-Cap category, as its asset-weighted return was 211 bps higher than its benchmark.
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SPIVA® Japan Mid-Year 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 we first published the SPIVA U.S. Scorecard in 2002. Over the years, we have expanded the scorecard coverage into Australia, Canada, Europe, India, South Africa, Latin America, and Japan.
  • The SPIVA Japan Scorecard reports on the performance of actively managed Japanese mutual funds against their respective benchmark indices over 1-, 3-, 5-, and 10-year investment horizons.
  • In this scorecard, we evaluated the returns of more than 829 Japanese large- and mid-/small-cap equity funds, along with more than 703 international equity funds investing in global, international, and emerging markets, as well as U.S. equities.
  • Benchmark indices for the domestic and foreign equity markets recovered in the first half of 2019; however, the Japanese large-cap funds and the majority of foreign equity fund categories recorded lower equal-weighted average returns than their respective benchmarks.
  • There was no consistent trend in the yearly active versus index figures, but we have consistently observed underperformance for the majority of Japanese active funds in most categories over the 10-year period.

  • Domestic Equity Funds: In the 12-month period ending June 2019, the S&P/TOPIX 150 and the S&P Japan MidSmallCap lost 5.6% and 11.7%, respectively. Over the same period, 93% and 69% of large- and mid-/small-cap equity funds underperformed their respective benchmarks, with average losses of 10.4% and 13.4%, respectively.

    Over the 10-year horizon, more than 70% and 50% of large- and mid-/small-cap funds underperformed their benchmarks, respectively, on absolute and risk-adjusted bases. Nevertheless, the equal- and asset-weighted fund returns of the mid-/small-cap funds exceeded their respective benchmarks’ returns over the same period.

    Compared with the benchmark indices, the domestic equity funds performed better than the foreign equity funds over the longer periods, and domestic equity funds also had a lower liquidation rate than foreign equity funds.

  • Foreign Equity Funds: Over the 12-month period ending June 2019, emerging market equity funds recorded the best relative performance among all the foreign equity fund categories, with more than half of funds outperforming the S&P Emerging BMI. However, a majority of funds in the remaining foreign equity fund categories failed to beat the benchmark indices, and they recorded a lower average return than the benchmark.

    Over the 10-year period, the majority of funds underperformed their respective benchmarks across various foreign fund categories. Less than 15% of foreign equity funds survived and outperformed their respective benchmarks on absolute and risk-adjusted bases. More than 40% of foreign equity funds were merged or liquidated over the 10-year period.

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SPIVA® South Africa Mid-Year 2019

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Zack Bezuidenhoudt

Head of Client Coverage, South Africa and Sub-Saharan Africa

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Andrew Innes

Head of EMEA, 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.

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.


Global Equities

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.


Fixed Income

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.

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SPIVA® Europe Mid-Year 2019

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Andrew Innes

Head of EMEA, 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.

MID-YEAR 2019 HIGHLIGHTS

  • Over the one-year period ending June 30, 2019, 90% of active panEuropean equity funds underperformed their passive benchmarks.
    • The group’s asset-weighted return for the period was negative, while the S&P Europe 350® benchmark was up 5.3%.
  • Emerging market equity funds domiciled in Europe bucked the trend over the one-year period compared with other active fund categories, with 52% of GBP- and 42% of EUR-denominated funds outperforming their benchmark.
    • Despite their notable performance over the one-year period, 87% of GBP- and 95% of EUR-denominated emerging market equity funds underperformed their benchmark over the 10-year period ending June 30, 2019.
    • Additionally, on an asset-weighted basis, the EUR-denominated emerging market equity fund category underperformed its benchmark by over 2% annually over the same 10-year period.
  • Markets continued to contend with global trade tensions that have contributed to an economic slowdown in Germany, Europe’s largest exporter. German equity was the only euro-denominated fund category in which the benchmark, the S&P Germany BMI, experienced negative returns over the one-year period, at -1.2%.
    • Active funds investing in Germany were largely unable to outmaneuver the downtrend and delivered a return of -4.4% on an asset-weighted basis over the same period.
  • The steep declines seen across equity markets in late 2018 were accompanied by near-ubiquitous underperformance across the fund categories’ asset-weighted returns. As markets improved in the first half of 2019, active managers were generally not able to make up for lost ground. Among the 23 categories of active funds domiciled in Europe, all but three underperformed over the one-year period ending June 30, 2019.
    • Most notably, active funds over the one-year period in:
      • French equities were down 2.6% (8.8% below the S&P France BMI); and
      • Spanish equities were down 7.1% (8.0% below the S&P Spain BMI).
  • It has been over three years since the Brexit referendum was held on June 23, 2016. In the threeyear period from mid 2016, UK small-cap equity funds outperformed the S&P United Kingdom SmallCap by 3.4% per year on an asset-weighted basis. The past year, however, marked a stark reversal, with the same category underperforming the benchmark by 3.7% on the same basis.
    • Over the three-year period, 70% of UK small-cap funds outperformed their benchmark, which was the highest rate among all fund categories. Other active UK equity categories also fared well over the period.
    • Over the more recent one-year period, fund managers were largely unable to capitalize on the looming Brexit uncertainty, with 80% of all UK-focused funds underperforming their benchmarks.
  • From the perspective of a European investor, U.S. and global equity markets significantly outperformed the local markets. A strong U.S. dollar persisted over the one-year period and contributed to the S&P 500® and S&P Global 1200 increasing 13.2% and 9.9% in euro terms, respectively.
    • Of those active funds domiciled in Europe, fewer than 16% covering U.S. equities or 13% covering global equities were able to outperform their benchmark over the one-year period.
    • These figures declined to fewer than 3% and 2%, respectively, over the 10-year period.

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