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U.S. Persistence Scorecard Mid-Year 2020

SPIVA® Latin America Scorecard Mid-Year 2020

SPIVA® Japan Mid-Year 2020

SPIVA® India Mid-Year 2020

SPIVA® South Africa Mid-Year 2020

U.S. 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

SUMMARY

Do investment results come from skill or luck?  Genuine skill is likely to persist, while luck is random and fleeting.  Thus, one measure of active management skill is the consistency of a fund’s performance relative to its peers.

The Persistence Scorecard attempts to distinguish luck from skill by measuring the consistency of active managers’ success.  This report shows that, regardless of asset class or style focus, active management outperformance is typically short-lived, with few fund managers consistently outperforming their cohorts.

For example, of the domestic equity funds that finished in the top half in terms of cumulative returns for the period from June 2010 to June 2015, 38.6% replicated that accomplishment during the period from June 2015 to June 2020.  In fact, it was more likely for a top-half fund to close its doors or change its style (41.5% combined) than repeat its performance in the top half (see Report 6).

U.S. Persistence Scorecard Mid-Year 2020 - Exhibit 1

At first glance, there were some signs of performance persistence when narrowing the measurement intervals to consider annual consistency.  Of the top-quartile domestic equity funds in June 2018, 35.5% managed to stay in the top quartile annually through June 2020 (see Report 1).

However, this persistence was inconsistent and decayed over time.  Rewinding the clock two years, just 1.6% of domestic equity funds in the top quartile as of June 2016 maintained that status annually through June 2020.  Widening the filter to funds in the top half, 15.8% of domestic equity funds maintained that status in each of the next four years (see Report 2).

Some statistically minded readers might note that these numbers are better than what would be expected if fund performance was randomly distributed.  For example, the odds that a fund could remain in the top quartile for four consecutive years might be calculated as (25%)4 = 0.39%, and the 1.6% referenced above is substantially better than that.  While the persistence report may not prove that fund performance is completely random, from a practical or decision-making perspective, it reinforces the notion that choosing between active funds on the basis of previous outperformance is a misguided strategy.  After all, there remains a 98.4% chance that a top-quartile fund will not stay in the top quartile for the next four years.

There were few patterns to be found among equity funds, as the non-repeatable distribution of fund performance over various time frames covered large-, mid-, small-, and multi-cap focused funds.  One salient illustration of the lack of persistence was that none of the 71 top-quartile mid-cap funds from June 2016 remained in the top quartile annually through June 2020 (see Report 2).

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SPIVA® Latin America 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

SUMMARY

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 periods.

March 2020 presented the largest single-month drawdown in at least 10 years for all categories.  The majority of equity active managers in Chile and Mexico failed to outperform, especially over longer periods.  The Brazilian large-cap segment did a bit better and active managers were able to beat their benchmark over the one- and three-year periods.  However, even this advantage disappeared over longer periods.

Brazil

  • After four years of double-digit returns in the Brazilian equity market, the S&P Brazil BMI fell 15.62% during the first half of the year. The COVID-19-driven sell-off had an impact on all Brazilian equity market segments.  Large- and mid-small-cap companies presented negative returns of 15.81% and 15.20%, respectively, as measured by the S&P Brazil LargeCap and S&P Brazil MidSmallCap.
  • During the first half of 2020, the National Monetary Council cut policy interest rates (Selic) by 225 bps from 4.5% to 2.25%, as of June 30, 2020. In this low rate environment, equity funds in three segments (Brazil Equity Funds, Brazil Large-Cap Funds, and Brazil Mid-/Small-Cap Funds) posted noteworthy performance, despite the overall negative performance of the asset class. Survivorship rates for the one- and three-year horizons increased, compared with the SPIVA Latin America Year-End 2019 Scorecard, especially the Brazil Mid-/Small-Cap Funds and Brazil Equity Funds, which increased their three-year survivorship rate by 8.11% and 2.06%, respectively, (see Report 2 and Exhibit 1).
  • Over the one-year period, most active fund managers outperformed their benchmarks in three of the five categories: 57.65% of Brazil Equity Fund managers, 63.16% of the Brazil Large-Cap Fund managers, and 52.59% of the Brazil Corporate Bond Fund managers beat their benchmarks. Active managers from all categories fared poorly relative to their respective benchmarks over the 5- and 10-year periods (see Report 1).
  • All categories, except for Brazil Government Bond Funds, showed that over the one-year period, larger funds performed worse than smaller funds. However, over the 10-year horizon, larger funds performed better than smaller funds on an equal-weighted basis (see Report 3) versus an asset-weighted basis (see Report 4).

Chile

  • The Chilean equity market continued its negative trend, returning -21.69% over the 12-month period ending in June 2020, as measured by the S&P Chile BMI. Volatility in Chile started before COVID-19 due to the civil unrest starting Oct. 18, 2019. 
  • The majority of active equity fund managers underperformed the S&P Chile BMI over the 3-, 5-, and 10-year periods, with the median of funds underperforming the benchmark by 1.68%, 2.71%, and 2.34%, respectively (see Report 5). The performance was worse over longer time horizons, with 93.02% and 100.00% of funds underperforming the benchmark over the 5- and 10-year periods, respectively. 
  • Smaller funds performed relatively better than larger funds over all time horizons on an equal-weighted basis (see Report 3) versus an asset-weighted basis (see Report 4).

Mexico

  • The S&P/BMV IRT fell 12.81% over the first half of 2020.  For the 12-month period ending June 30, 2020, the index was down 10.87%.  The majority of active managers underperformed the S&P/BMV IRT over all periods observed.  Despite the volatile circumstances over the 12-month period, 64.0% of funds underperformed the benchmark.
  • Median fund underperformance was 1.42%, 0.71%, 1.93%, and 1.69% for the 1-, 3-, 5-, and 10-year periods, respectively.  The best managers in the category (first quartile) outperformed the S&P/BMV IRT by 96 bps over the 1- and 3-year periods, but could not sustain this outperformance for longer periods, ultimately underperforming by 16 bps over the 10-year horizon.
  • The survival rates over the one- and three-year horizons were reduced by 4.04% from the SPIVA Latin America Year-End 2019 Scorecard (see Exhibit 1).  The three- and five-year survival rates of Mexico Equity Funds were the highest of Latin America, at 91.49% and 88.64%, respectively.

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SPIVA® Japan Mid-Year 2020

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Priscilla Luk

Managing Director, Global Research & Design, APAC

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Arpit Gupta

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.
  • The SPIVA Japan Scorecard reports on the performance of actively managed Japanese mutual funds against their respective benchmark indices over 6-month and 1-, 3-, 5-, and 10-year investment horizons.

  • In this scorecard, we evaluated the returns of more than 743 Japanese large- and mid-/small-cap equity funds, along with more than 681 international equity funds investing in global, international, and emerging markets, as well as U.S. equities.
  • Drawdowns were seen in domestic and foreign equity benchmark indices in the first half of 2020 due to the COVID-19 pandemic, with Japanese mid- and small-cap and emerging market equity indices suffering bigger losses.
  • The majority of Japanese equity funds beat their respective benchmarks amid the COVID-19 pandemic, while the relative performance of foreign equity funds was disappointing. Over longer time periods, we also observed that domestic equity funds tended to have better performance than foreign equity funds compared with their respective benchmark indices.

SPIVA Japan Mid-Year 2020 Exhibit 1

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SPIVA® India Mid-Year 2020

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Akash Jain

Associate Director, Global Research & Design

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Arpit Gupta

Senior Analyst, 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. 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 2020.

A volatile H1 2020 saw the S&P BSE 100, the benchmark for large-cap funds in India, ending in the red (down 14.39%). Conversely, investors that tactically shifted asset allocations to Indian fixed income categories at the start of 2020 may have endured lower drawdowns, with the S&P BSE India Government Bond Index ending in the black (up 7.78%) in the same period.  The sharp correction in Q1 of calendar year 2020 was followed by a strong rebound in Q2 of calendar year 2020 with the S&P BSE 100 up 20.3%, supported by the economic relief package coupled with easing monetary policy. 

For Indian equity categories in H1 2020, the equal-weighted fund returns were higher than their respective asset-weighted and index returns, suggesting that smaller-sized funds were able to better navigate this volatile period than their larger peers. 

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SPIVA® South Africa Mid-Year 2020

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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 six-month and one-, three-, and five-year investment horizons.

MID-YEAR 2020 HIGHLIGHTS

South African Equity

Over 73% of South African Equity funds underperformed the S&P South Africa 50 over the first six months of the year.  Comparing the same funds with a broader benchmark, namely the S&P South Africa Domestic Shareholder Weighted (DSW) Capped Index, only 36% of funds underperformed.

The contrast in fortunes of the two benchmarks continued to highlight the relative strength of South African large-cap stocks when compared with small and mid caps.  The large-cap benchmark, the S&P South Africa 50, returned 4.5% more in the first six months of 2020 than South African Equity funds measured on an asset-weighted basis.  This large-cap benchmark dominance is also reflected over the five-year period, when 95% of South African Equity funds underperformed.  On an asset-weighted basis, these funds underperformed by 3.3% annually.

Fiscal stimulus was passed in April 2020 to help stave off the threat of a deepening economic contraction and interest rates were slashed by 2.75%.  Despite these efforts to spur the economy, South African Equity funds struggled to recover from the COVID-19-related drawdowns of 2020.  The 75th percentile of South African Equity funds was 3.9% lower over the first six months of the year.

The interquartile range, the difference between the first quartile and third quartile in Report 5, highlights the dispersion in performance considerably widened for South African Equity funds.  During the first six months of 2020, the spread was 7.7% compared with 3.5% over the five-year period—showcasing that volatile markets affected performance dispersion for equity funds.

Global Equity

The continued weakening of the South African rand versus other major currencies helped Global Equity funds return an impressive14.8% over the six-month period on an asset-weighted basis.  Despite this, 68% of Global Equity funds failed to keep pace with the S&P Global 1200 over the first six months of the year.  This figure increased to 90% when measured over the five-year period.  On an asset-weighted basis, Global Equity funds were 2% below the benchmark over the six-month period and 2.6% worse off over the five-year period.

Fixed Income

Over the first six months of 2020, 31% of funds in the Diversified/Aggregate Bond category failed to beat the S&P South Africa Sovereign Bond 1+ Year Index.  The same funds outperformed the benchmark by 1.2% on an asset-weighted basis.  When extended to the five-year period, 49% of funds underperformed the benchmark.

In the Short-Term Bond fund category, 54% of managers were unable to outperform the South Africa Short Term Fixed Interest (STeFI) Composite over the first six months of the year.  When compared with the longer-term five-year period, when 85% of funds outperformed the benchmark, it becomes clear that Short-Term Bond managers struggled to capitalize on the increased volatility and difficult market conditions brought on by the global COVID-19 pandemic.

Comparing fixed income and equity funds, the H1 2020 market turmoil took a greater toll on the latter.  Except for the S&P South Africa 50, the gains over the five-year period were completely eroded by the global COVID-19 crisis, whereas both the fixed income benchmarks and average fund managed to keep their head above water during the first six months of 2020.

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