IN THIS LIST

SPIVA® U.S. Year-End 2020

SPIVA Australia Year-End 2020

Latin America Persistence Scorecard: Mid-Year 2020

Australia Persistence Scorecard: Mid-Year 2020

Canada Persistence Scorecard: Mid-Year 2020

SPIVA® U.S. Year-End 2020

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Berlinda Liu

Director, Global Research & Design

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Gaurav Sinha

Managing Director, Head of Americas Global Research & Design

SUMMARY

The year 2020 was tumultuous for financial markets. The COVID-19 pandemic threw the world into chaos early in the year, with the S&P 500® falling 33.8% between Feb. 19, 2020, and March 23, 2020. Governments and central banks pulled out their playbooks from the global financial crisis of a decade earlier and acted swiftly to increase spending and ease monetary policy. Financial markets rapidly recovered, with the S&P 500 regaining its all-time high by August and ending the year up 18.4% after shrugging off U.S. election histrionics.

The torrent of liquidity depressed interest rates and pushed up asset prices nearly everywhere investors looked. Of the 31 distinct benchmarks tracked by this report, 30 finished with a positive return for 2020; the S&P United States REIT (-7.5%) was the only exception.

The positive market performance broadly translated into good absolute returns for active fund managers. While the turmoil and disruption caused by the pandemic should have offered numerous opportunities for outperformance, 57% of domestic equity funds lagged the S&P Composite 1500® during the one-year period ending Dec. 31, 2020.

SPIVA US Year-End 2020 Exhibit 1

Large-cap funds picked up where they left off the previous decade—for the 11th consecutive one-year period, the majority (60%) underperformed the S&P 500. Mid-cap (51%) and small-cap (46%) funds did somewhat better relative to the S&P MidCap 400® and S&P SmallCap 600®, respectively.

The ongoing growth versus value battle firmly tilted toward growth in 2020. The pandemic boosted the fortunes of those positioned to take advantage of changing lifestyles, with the S&P 500 Growth returning 33.5%, while the S&P 500 Value managed a meager 1.4%. A healthy 62% of large-cap growth funds, 83% of mid-cap growth funds, and 86% of small-cap growth funds topped the S&P 500 Growth, S&P MidCap 400 Growth, and S&P SmallCap 600 Growth, respectively. However, this did little to improve their longer-term relative performance, as on a 20-year horizon a paltry 4%, 10%, and 6% of large-, mid-, and small-cap growth funds beat their benchmarks, respectively.

Active value funds posted more mixed results. While 67% of large-cap value funds beat the S&P 500 Value, just 47% of mid-cap value funds and 56% of small-cap value funds were able to do so. Nevertheless, 20-year results showed a similar decline to growth funds, as just 23%, 15%, and 24% of large-, mid-, and small-cap value funds outperformed their benchmarks, respectively.

For U.S. funds looking outside of the country, relative results in 2020 were a toss-up. Roughly 50% of global, international, international small-cap, and emerging markets funds beat the S&P Global 1200, S&P International 700, S&P Developed Ex-U.S. SmallCap, and S&P/IFCI Composite, respectively. This clustering artifact remained, but the poor results widened when viewed over three years (about 60% underperforming), five years (about 70%), or 20 years (about 90%).

Gorging on central bank largesse, the long-tenor bonds of the Bloomberg Barclays US Government Long returned a spectacular 17.6% for the year. The government long funds charged with targeting this index failed in spectacular fashion, as fewer than 6% were able to clear this hurdle. In 3 of the 14 fixed income categories tracked (government long funds, investment-grade long funds, and loan participation funds), more than 90% of funds failed to clear their benchmarks in 2020. Better results were generally found in the intermediate and shorter-dated tenors for 2020.

Echoing the results from equities, longer observation horizons offered little sanctuary. More than 60% of funds underperformed their benchmarks across all fixed income categories over the 15-year horizon; in 10 of the 14 categories tracked, more than 80% of funds came up short.

The SPIVA Scorecard's accounting for survivorship bias continues to be a valuable cautionary tale. As has generally been the case in recent years, roughly 5%-10% of funds across asset classes and categories were merged or liquidated in 2020. Over 20 years, nearly 70% of domestic equity funds and two-thirds of internationally focused equity funds across segments were confined to the history books.

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SPIVA Australia Year-End 2020

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Priscilla Luk

Managing Director, Global Research & Design, APAC

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Arpit Gupta

Senior Analyst, Global Research & Design

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Tim Wang

Senior Analyst, 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 SPIVA® U.S. Scorecard in 2002. Over the years, we have built on our 18 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 different time periods. In this scorecard, we evaluated returns of over 897 Australian equity funds (large, mid, and small cap, as well as A-REIT), 475 international equity funds, and 112 Australian bond funds.
  • Strong recovery was seen in equity markets after sell-offs in February and March 2020. Apart from Australian A-REIT funds, the majority of active funds across various equity fund categories, Australian Equity General, Australian Equity Mid- and Small-Cap, and International Equity General, outperformed their respective benchmarks in the second half of 2020.
  • Average Australian Bond funds started outperforming the benchmark since April 2020. In the second half of 2020, more than 80% of Australian Bond funds beat the S&P/ASX Australian Fixed Interest 0+ Index with an equal-weighted average excess return of 0.7%.

SPIVA Australia Year-End 2020 - Exhibit 1

  • Australian Equity General Funds: The S&P/ASX 200 gained 13.2% in the second half of 2020, while Australian Equity General funds enjoyed higher returns of 14.6% and 15.0% on equal- and asset-weighted bases, respectively. Over the 6- and 12-month periods ending December 2020, only 39.3% and 55.6% of funds were beaten by the benchmark, respectively, which were much lower than the observations over the 3- and 5-year horizons.  However, over 7% of funds in this category were liquidated in 2020.
  • Australian Equity Mid- and Small-Cap Funds: The S&P/ASX Mid-Small had a strong return of 21.7% in the second half of 2020, while the Australian Equity Mid- and Small-Cap funds recorded bigger gains. Funds with smaller assets tended to suffer more losses during the first half of 2020, but they tended to perform better during the recovery in the second half, with the equal-weighted returns exceeding the asset-weighted return by more than 1%.  Over the 6- and 12-month periods ending December 2020, 34.1% and 53.0% of funds failed to outperform the benchmark, respectively.
  • International Equity General Funds: The international equity market recorded smaller gains than the Australian equity market in the second half of 2020. The S&P Developed Ex-Australia LargeMidCap marked a return of 10.2% and more than half of the International Equity General funds outperformed the benchmark over this period.  Over the 6- and 12-month periods, the equal-weighted returns exceeded the asset-weighted returns by 1.7% and 2.3%, respectively, indicating funds with smaller assets tended to perform better than their peers with larger assets in the past year.
  • Australian Bond Funds: The S&P/ASX Australian Fixed Interest 0+ Index recorded a narrow gain of 0.9% in the second half of 2020, though the Australian Bond funds recorded higher returns of 1.6% and 1.8% on equal- and asset-weighted bases, respectively. Over the 6- and 12-month periods ending December 2020, only 16.7% and 39.4% of funds underperformed the benchmark in this category, which was the most favorable among active funds across all SPIVA fund categories.
  • Australian Equity A-REIT Funds: The S&P/ASX 200 A-REIT gained 21.2% in the second half of 2020, though more than half of the Australian Equity A-REIT funds underperformed the benchmark, recording slightly smaller returns of 20.7% and 20.4% on equal- and asset-weighted bases, respectively. In 2020, 54.5% of funds in this category did not outperform the benchmark and the equal- and asset-weighted average returns lagged the benchmark return by 1.3% and 1.7%, respectively.
  • Fund Survivorship: In 2020, the overall fund liquidation rate across all categories was 6.1%, which was higher than the rate of 3.5% in 2019. The highest liquidation rates were seen in the Australian Equity General and Australian Equity A-REIT fund categories.  In 2020, 7.1% of Australian Equity General funds were liquidated, compared with 1.8% in 2019.  The liquidation rate of Australian Equity A-REIT funds was 7.6% in 2020, much higher than the rate of 2.9% recorded in 2019.

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Latin America Persistence Scorecard: Mid-Year 2020

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María Sánchez

Associate Director, Global Research & Design

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Gaurav Sinha

Managing Director, Head of Americas Global Research & Design

INTRODUCTION

  • In the active versus passive investment debate, a manager’s ability to deliver consistently above-average returns is key. Persistence in performance is one way to differentiate skill from luck.
  • In this report, we measure the performance persistence of active funds in Brazil, Chile, and Mexico that outperformed their peers over consecutive three- and five-year periods. We also analyze how their performance ranking changed over subsequent periods.

SUMMARY OF RESULTS

Brazil

  • The percentage of Brazil Equity Funds and Brazil Large-Cap Funds top performers that remained in the top quartile after 12 months fell drastically compared with the previous report (from 33% to 13% and 33% to 19%, respectively), as shown in Exhibit 1.
  • Exhibit 2 highlights the inability of top-performing equity fund managers to consistently replicate their success in subsequent years.
  • Among fixed income funds, Brazil Government Bond Funds had similar results to Brazil Equity Funds. Brazil Corporate Bond Funds performed slightly different; while the majority of managers did not maintain consistent outperformance for five years in a row, a notable 21% of them did (see Exhibit 2).
  • The five-year transition matrix (see Exhibit 5) highlights three categories: equity, large-cap equity, and government bond funds. The chance of a winning fund remaining in the top quartile after five one-year periods was higher than the chance of it liquidating.
  • Half of the top-quartile funds in the Brazil Corporate Bond Funds category remained in the top quartile and the other half were merged or liquidated (see Exhibit 5).

Chile

  • A majority of Chilean top-performing equity funds (56%) stayed in the top quartile for two consecutive years, but just 11% stayed the third year (see Exhibit 1).
  • Exhibit 2 demonstrates the lack of persistence by equity managers in Chile—just 10% of top performing funds in the first 12-month period repeated their outperformance after three years. None of the top-performing funds persisted after five years.
  • Top-quartile managers in the first period of the three-year transition matrix that maintained their top-quartile status in the second period were more likely to stay in the first quartile (44%) than to move to lower quartiles (see Exhibit 3).
  • The five-year transition matrix showed a lack of resilience among managers in the second quartile, with 70% of Chile Equity Funds being merged or liquidated (see Exhibit 5).

Mexico

  • Of the funds in the Mexico Equity Funds category, 17% stayed in the top quartile for three consecutive years (see Exhibit 1).
  • The five-year performance persistence test (see Exhibit 2) shows that top-quartile managers had difficulty replicating their outperformance in subsequent years. For the first and second one-year periods, just 9% of managers remained in the top quartile, and by the third year, none of them remained.
  • Exhibit 6 shows that top-half managers in the first five-year period were resilient; 93% of them survived in the second five-year period.

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Australia Persistence Scorecard: Mid-Year 2020

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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 three- and 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 2016, only 1.0% persistently maintained a top-quartile rank, and 2.0% 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 166 Australian funds that ranked in their respective top quartile in the five-year period ending June 2015, only 31.3% of them remained in the top quartile, and 11.4% were liquidated or merged in the subsequent five-year period.
  • Out of the 258 Australian funds that outperformed their respective benchmark in the five-year period ending June 2015, only 28.7% continued to outperform their respective benchmark in the following five-year period, and 14.7% 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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Canada Persistence Scorecard: Mid-Year 2020

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Berlinda Liu

Director, Global Research & Design

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Gaurav Sinha

Managing Director, Head of Americas Global Research & Design

Our widely followed SPIVA® Canada Scorecard repeatedly shows that most Canadian active managers underperform their benchmarks most of the time. However, if an active manager beats a benchmark, how do we know whether the result is a product of genuine skill or merely of good luck? Genuine skill is likely to persist, while luck is random and can soon dissipate.

The Persistence Scorecard attempts to distinguish luck from skill by measuring the consistency of active managers’ success. The inaugural Canada Persistence Scorecard shows that, regardless of asset class or style focus, few Canadian fund managers have consistently outperformed their peers.

For example, of the Canadian Equity funds that finished in the top quartile in terms of cumulative returns for the period from June 2010 to June 2015, only 8.3% finished in the top quartile for the period from June 2015 to June 2020. In fact, it was more likely for a top-quartile fund to close its doors or change style (25% combined) than to remain in the top quartile.

Canada Persistence Scorecard Mid-Year 2020 - Exhibit 1

Even when using a less-restrictive metric for success, just 37.5% of Canadian Equity funds in the top half of the distribution for the period from June 2010 to June 2015 managed to repeat their top-half performance over the next five years.

This was hardly an outlier for any category or time period. Three-year transition matrices showed that in only one category (Global Equity) did more than 50% of funds repeat their top-half performance from the June 2014 to June 2017 period in the subsequent three years.

When looking at annual consistency, in five out of the seven categories tracked, none of the funds in their category’s top quartile in June 2016 maintained that status annually through June 2020. Over shorter time periods, no International Equity or U.S. Equity fund even managed to retain their top-quartile status for the next two years.

Some statistically minded readers might find support for the notion that fund performance is not randomly distributed. For example, the odds that a fund could remain in the top quartile for n consecutive years might be calculated as (25%)n = 25%, 6.25%, 1.56%, and 0.39% for one, two, three, and four years, respectively. While the persistence numbers in Reports 1 and 2 did intermittently top these thresholds, they remained quite low on an absolute basis. As such, while the Persistence Scorecard has not proven that fund performance is completely random, from a practical or decision-making perspective, it has reinforced the notion that choosing between active funds on the basis of previous outperformance can be a misguided strategy.

Unsurprisingly, the one pattern that did hold across categories was the tendency of the poorest funds to close. Calculating across all categories, there were 458 funds tracked over the period from June 2010 to June 2015. Observing their fates through June 2020, while just 8.6% of top-quartile funds ended up closing, 40.5% of funds in the bottom quartile did so. Seemingly coming in for the most opprobrium from their investors, 76.2% of bottom-quartile Canadian Focused Equity funds disappeared.

Style changes did not appear to be correlated with fund performance. Top, middle, and bottom performers within a category all generally had similar chances of style drift over the three- or five-year periods. Over the five-year period, Canadian Dividend & Income Equity funds had the highest percentage of style change (8.5%), with International Equity funds leading the way over the three-year period (5.4%).

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