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U.S. Persistence Scorecard: December 2019

SPIVA^® Latin America Scorecard Mid-Year 2019

SPIVA^® U.S. Mid-Year 2019

SPIVA^® India Mid-Year 2019

SPIVA^® South Africa Mid-Year 2019

SPIVA - Dec 04, 2019

U.S. Persistence Scorecard: December 2019

Phillip Brzenk

Managing Director, Global Head of Multi-Asset Indices

S&P Dow Jones Indices

SUMMARY OF RESULTS

The S&P Persistence Scorecard attempts to distinguish a manager’s luck from skill. One key measure of successful active management lies in the ability of a manager to outperform his peers consistently.
This report’s results show that, irrespective of asset class or style focus, few fund managers consistently outperformed their peers.
For funds categorized as top performers in September 2017, 47% maintained their top-quartile performance the subsequent year. However, there was a dramatic fall in persistence afterward—just 8% of domestic equity funds remained in the top quartile in the three-year period ending September 2019. This result (8%) is consistent with the notion that historical performance is only randomly associated with future performance.
Smaller-cap equity funds recorded lower persistence compared with results from six months prior—mid-cap persistence dropped to 7% from 14%, and small-cap funds sank to 11% from 23%.

An inverse relationship exists between the time horizon length and the ability of top performing funds to maintain their success. Less than 3% of equity funds in all categories maintained their top-quartile status at the end of the five-year measurement period. In fact, no large-cap fund was able to consistently deliver top-quartile performance by the end of the fifth year.
Report 3 shows that over 44% of top-quartile large-cap managers from the first three-year period continued to show top performance in the second three-year period—a figure higher than what would be expected at random. Top-quartile mid- (30%) and small-cap (18%) funds did not fare as well.
For the five-year transition matrix, 32% of top-performing equity funds in the first period remained in the top quartile in the second period. However, 20% of top-quartile funds also moved to the lowest quartile, and an additional 8% of funds were merged or liquidated, highlighting that it was almost as likely for a top-quartile fund to falter than it was to remain in the top quartile.
Fourth-quartile funds were most likely to be merged or liquidated across categories over the five-year horizon. This supports the view that underperformance typically precedes a fund’s closure.
Top-quartile mortgage-backed securities funds demonstrated the best performance persistence among fixed income funds; 23% of managers maintained their top-performing status during the three-year period ending September 2019. However, this is a decline from the results six months prior (38%).
Over longer horizons, most fixed income categories showed no persistence: Of the 13 fixed income categories, seven showed no managers remaining in the top quartile over the five-year horizon.

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SPIVA - Nov 27, 2019

SPIVA^® Latin America Scorecard Mid-Year 2019

Phillip Brzenk

Managing Director, Global Head of Multi-Asset Indices

S&P Dow Jones Indices

María Sánchez

Director, Sustainability Index Product Management, U.S. Equity Indices

S&P Dow Jones Indices

SUMMARY

The S&P Indices Versus Active (SPIVA) Latin America Scorecard reports on the performance of actively managed mutual funds in Brazil, Chile, and Mexico against their respective category benchmarks over the 1-, 3-, 5-, and 10-year time horizons.

Brazil

The multi-year equity bull market in Brazil, which began in 2016, continued this year, with the S&P Brazil BMI rising 16.4% during the first half of 2019. Mid- and small-cap companies (S&P Brazil MidSmallCap) led the way, up 21.1%, while large-cap companies (S&P Brazil LargeCap) lagged (returning 14.3%). For the 12-month period ending in June 2019, Brazilian equities returned 41.2%, with smaller-cap companies once again outpacing large caps (47.0% versus 38.9%).
With inflation figures within the target range set by the National Monetary Council for 2019, interest rates were left unchanged in the first half of the year. The stability in rates proved beneficial for fixed income markets in the first six months of the year, as corporates were up 5.9% (as measured by Anbima Debentures Index) and government bonds were up 7.9% (as measured by Anbima Market Index). For the one-year period ending June 2019, corporates gained 11.7%, while government bonds were up 15.9%.
Over all time horizons and fund categories, active managers in Brazil fared poorly relative to their respective benchmarks. Over the one-year period ending in June 2019, 70% of all equity managers underperformed the S&P Brazil BMI, with the figure increasing to 84% when measuring relative performance over the 5- and 10-year periods.
For the 10-year horizon, larger funds performed relatively better than smaller funds in four of the five categories when comparing average fund performance on an equal-weighted versus assetweighted basis.

Chile

Alongside lower-than-expected economic growth in the first half of the year, the Chilean equity market was relatively flat (-0.6%) in the first six months of 2019. Over the 12-month period ending in June 2019, the market declined 4.3%, as measured by the S&P Chile BMI.
The majority (64%) of active equity fund managers underperformed the S&P Chile BMI over the past one-year period, with the median fund underperforming the benchmark by 1.1%.
Longer time horizons paint a worse picture of fund performance, as 98% of funds underperformed the benchmark over the 10-year period. Perhaps not coming as a surprise due to the underperformance, funds in Chile have a poor survival rate—50% of all funds that were active at the beginning of the 10-year period were merged or liquidated as of June 2019.

Mexico

Despite weakened economic growth in Mexico, the equity market rebounded in the first half of 2019, with the S&P/BMV IRT increasing 5.6%. The downturn seen in most global equity markets in the fourth quarter of 2018 was reflected in one-year return of -6.7% as of June 2019.
Active managers were unable to repeat their relative success seen in the year-end 2018 report, when 58% of managers outperformed the benchmark. For the 12-month period ending in June 2019, 64% underperformed the S&P/BMV IRT, with a median underperformance of 1.3%. The longer the time horizon, the worse things got for managers, as 86% of funds underperformed the benchmark over the 10-year period.
Mexico not only saw the highest survival rate for equity funds in Latin America, but also some of the highest globally. All funds survived over the 12-month period, with the survival rate above 90% for the three- and five-year periods.

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SPIVA - Nov 13, 2019

SPIVA^® U.S. Mid-Year 2019

Phillip Brzenk

Managing Director, Global Head of Multi-Asset Indices

S&P Dow Jones 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.

SPIVA U.S. Mid-Year 2019: Exhibit 1

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 - Oct 22, 2019

SPIVA^® India Mid-Year 2019

Akash Jain

Director, Global Research & Design

S&P Dow Jones Indices

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.

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- 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.

SPIVA - Oct 15, 2019

SPIVA^® South Africa Mid-Year 2019

Zack Bezuidenhoudt

Director, Client Coverage Israel, Benelux, Nordics, and U.K.

S&P Dow Jones Indices

Andrew Innes

Head of Global Research & Design

S&P Dow Jones Indices

Andrew Cairns

Senior Director, Global Research & Design

S&P Dow Jones Indices

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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