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U.S. Persistence Scorecard Mid-Year 2022

Australian Persistence Scorecard: Mid-Year 2022

SPIVA South Africa Mid-Year 2022

SPIVA Japan Mid-Year 2022

SPIVA MENA Mid-Year 2022

U.S. Persistence Scorecard Mid-Year 2022

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Tim Edwards

Managing Director and Global Head of Index Investment Strategy

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Anu R. Ganti

Senior Director, Index Investment Strategy

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Joseph Nelesen, Ph.D.

Senior Director, Index Investment Strategy

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Davide Di Gioia

Director, Index Investment Strategy

SUMMARY

Can investment results be attributed to skill or luck? Genuine skill is more likely to persist, while luck is random and fleeting. Thus, one measure of skill is the consistency of a fund's performance relative to its peers. The Persistence Scorecard measures that consistency and shows that, regardless of asset class or style focus, active management outperformance is typically relatively short-lived, with few funds consistently outranking their peers.

The first half of 2022 saw the winds change materially for investors across asset classes, with active fund persistence decreasing in comparison to previous reports. Within each of our reported domestic equity categories, among all the funds whose performance placed them in the top quartile for the 12 months ending June 2020, not a single fund managed to remain in the top quartile over the next two years.

Exhibit 1 illustrates the evolution of top-half persistence statistics over time for all actively managed domestic equity funds, compared to what might be expected under a random distribution.

U.S. Persistence Scorecard Mid-Year 2022 - Exhibit 1

Report Highlights

Very few actively managed equity and fixed income funds managed to maintain consistent outperformance relative to their peers over the three- or five-year periods ending in June 2022.

− Of the actively managed equity funds whose 12-month performance placed them in the top quartile of their respective category as of June 2020, not a single fund maintained its top-quartile performance over the next two 12-month intervals.

In 12 out of 17 reported fixed income categories, no actively managed fund managed to maintain top-quartile performance over three consecutive 12-month periods ending June 2022. In 14 out of 17 categories, less than 25% of funds whose three-year performance placed them in the top half of their category as of June 2020 managed to maintain their record over the subsequent two years.

− Over a five-year horizon, it was statistically near impossible to find consistent outperformance. Among all actively managed funds whose performance over the 12 months ending June 2018 placed them in the top quartile within their respective category, not one fund in any of our reported fixed income and equity categories remained in the top quartile in each of the four subsequent one-year periods ending in June 2022.

Over discrete three- and five-year periods, there was some evidence of persistence in relative outperformance in fixed income categories, but less so in equities. For purposes of comparison, 25% of top-quartile funds would be expected to remain in the top quartile in a subsequent period if performance was purely random. Our scorecard reports an unweighted average of 14% and 31% remaining in the top quartile, respectively, across equity and fixed income categories over the past two consecutive three-year periods, and equivalent figures of 18% and 30% over the past two consecutive five-year periods.

Poor performance continued to be a reliable indicator of future fund closures. For example, of the actively managed domestic equity funds whose performance placed them in the bottom quartile of performance over the five-year period ending in June 2017, more than 29% were subsequently merged or liquidated over the next five years. In fact, in every reported equity category, and in all but two of our reported fixed income categories, the worst-performing quartile over the previous five years saw the highest (or joint-highest) proportion of funds that were subsequently merged or liquidated over the next five years.

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Australian Persistence Scorecard: Mid-Year 2022

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Benedek Vörös

Director, Index Investment Strategy

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Davide Di Gioia

Director, Index Investment Strategy

Summary

Can investment results be attributed to skill or luck? Genuine skill is more likely to persist, while luck is random and fleeting. Thus, one measure of skill is the consistency of a fund’s performance relative to its peers. The Persistence Scorecard measures that consistency and shows that, regardless of asset class or style focus, active management outperformance is typically relatively short-lived, with few funds consistently outranking their peers.

Within each of our reported fund categories across Australian Equity General, Australian Equity Mid- and Small-Cap, International Equity General, Australian Bonds and Australian Equity A-REIT, among all the funds whose performance placed them in the top quartile for the 12 months ending June 2018, not a single fund managed to remain in the top quartile for the next four years.

On the other hand, lowering the bar from the top quartile to the top half yields tentative evidence of persistence among a fraction of funds within the Australian Bond funds category. As Exhibit 1 illustrates, 10% of active funds in that category were able to repeat their top-half status over four consecutive five-year periods.

Australia

Report Highlights

Very few actively managed equity, A-REIT and fixed income funds managed to maintain consistent outperformance relative to their peers over the three- or five-year periods ending in June 2022.

− Of the actively managed International Equity General, Bond and Equity A-REIT funds whose 12-month performance placed them in in the top quartile of their respective category as of June 2020, not a single fund maintained its top-quartile performance over the next two 12-month intervals.

Over a five-year horizon, it was statistically near impossible to find consistent outperformance. Among all actively managed funds whose performance over the 12 months ending June 2018 placed them in the top quartile within their respective category, in all of our reported categories, not a single fund remained in the top quartile in each of the five subsequent one-year periods ending in June 2022.

Over the long term, poor performance has proven to be a reliable indicator of future fund closures. Across the five categories reported by our scorecard, an unweighted average of 38% of actively managed funds whose performance placed them in the bottom quartile of performance in the five years ending in June 2017 were subsequently merged or liquidated over the next five years, while the comparable figure for funds whose performance placed them in the top quartile of performance of their category in the five years ending in June 2017 was just 14%.

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SPIVA South Africa Mid-Year 2022

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Joseph Nelesen, Ph.D.

Senior Director, Index Investment Strategy

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Tim Edwards

Managing Director and Global Head of Index Investment Strategy

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Davide Di Gioia

Director, Index Investment Strategy

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, global equity and fixed income funds denominated in South African rand (ZAR) against their respective benchmark indices over various time horizons. 

Mid-Year 2022 Highlights

In a tumultuous first half of 2022, many actively managed funds in South Africa deftly navigated falling markets. Less than one-half of active South African funds underperformed in each of the South Africa Equity (36% and 45% for large caps and the broad market, respectively), Short-Term Bond (34%) and Diversified/Aggregate Bond (23%) categories, while slightly more than one-half underperformed in the Global Equity category (52%). Underperformance rates generally increased with measurement horizons, with a cross-category average of 75% of active funds underperforming over the past 10 years.

- South Africa Equity Funds: The S&P South Africa 50 fell 6.3% in H1 2022, while South Africa Equity funds lost 5.2% and 4.0% on equal- and asset-weighted bases, respectively, and 36% of funds underperformed the benchmark. Underperformance rates rose to 72%, 90% and 93% over the 3-, 5- and 10-year horizons, respectively. Compared to the S&P South Africa Domestic Shareholder Weighted (DSW) Capped Index, which dropped 5.3% in H1 2022, 45% of South Africa Equity funds underperformed. Over the 3-, 5- and 10-year horizons, underperformance rates climbed to 39%, 52% and 72%, respectively.

- Global Equity Funds: The S&P Global 1200 declined 17.2% during H1 2022, and Global Equity funds fell 18.1% and 17.9% on equal- and asset-weighted bases, respectively. Over the six-month period, 52% of funds in the category underperformed the benchmark. Over the 3-, 5- and 10-year periods, 92%, 96% and 96% of funds underperformed, respectively.

- Short-Term Bond Funds: The STeFI Composite climbed 2.2% in H1 2022, and 34% of Short-Term Bond funds underperformed the index. Funds in this category gained 2.2% and 2.1% on equal- and asset-weighted bases, respectively, over six months. Over the 3-, 5- and 10-year periods, 10%, 14% and 23% of funds underperformed, respectively. On a risk-adjusted basis, however, underperformance rates rose to 83%, 82% and 98% over the 3-, 5- and 10-year periods, respectively.

- Diversified/Aggregate Bond Funds: The S&P South Africa Sovereign Bond 1+ Year Index dropped 1.9% in the first six months of 2022, and 23% of Diversified/Aggregate Bond funds underperformed the index. Over the long term, 43%, 75% and 56% of funds underperformed over 3-, 5- and 10-year horizons, respectively.

- Fund Survivorship: Liquidation rates for all categories were in single digits for the one-year period ending June 30, 2022. The South Africa Equity fund category had the highest attrition rate, at 3.0%. Over the 10-year period, 39% of South Africa Equity funds merged or liquidated, and 31% of funds disappeared across all categories.

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SPIVA Japan Mid-Year 2022

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Tim Edwards

Managing Director and Global Head of Index Investment Strategy

Contributor Image
Anu R. Ganti

Senior Director, Index Investment Strategy

Contributor Image
Davide Di Gioia

Director, Index Investment Strategy

Since the first publication of the S&P Indices Versus Active (SPIVA) U.S. Scorecard in 2002, S&P Dow Jones Indices has been the de facto scorekeeper of the ongoing active versus passive debate.

The SPIVA Japan Scorecard measures the performance of actively managed funds offered in Japan against their respective benchmarks over various time horizons, covering large-, mid- and small-cap as well as international and global equity funds.

Mid-Year 2022 Highlights

A firm majority of 72% of All Japanese Equity funds underperformed the broad-based S&P Japan 500 over the first six months of 2022, and a majority of equity funds underperformed their benchmarks in every reported category apart from one.  International Equity funds were the notable exception, with an underperformance rate of 35% in H1 2022.

  • The S&P/TOPIX 150 lost 5.19% in the first half of the year, and 69% of Japanese Large-Cap funds underperformed the index over the period. This was the worst underperformance rate reported for the large-cap category since June 2019, and it acted to push up the 10-year underperformance rate to 86% (from the 82% reported in December 2021).
  • It was a different story in the International Equity funds category, with just 35% of actively managed funds underperforming the S&P Global 1200 Ex-Japan in H1 2022.
  • For Japanese Mid-/Small-Cap funds, 77% underperformed the S&P Japan MidSmallCap, which declined 3.57% in H1 2022. However, the long-term record of actively managed Japanese Mid-/Small-Cap funds remained relatively admirable, with just 46%, 38% and 53% underperforming over the 3-, 5- and 10-year periods, respectively.

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SPIVA MENA Mid-Year 2022

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Anu R. Ganti

Senior Director, Index Investment Strategy

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Davide Di Gioia

Director, Index Investment Strategy

Since the first publication of the S&P Indices Versus Active Funds (SPIVA) U.S. Scorecard in 2002, S&P Dow Jones Indices has been the de facto scorekeeper of the ongoing active versus passive debate.

The SPIVA MENA Scorecard measures the performance of actively managed MENA equity funds against their respective benchmarks over various time horizons, providing statistics on outperformance rates, survivorship rates and fund performance dispersion.

MID-YEAR 2022 HIGHLIGHTS

MENA equities plummeted in Q2, but managed to post slight YTD gains thanks to a stellar Q1, led in particular by the S&P Pan Arab Composite LargeMidCap Index.  The majority of funds across all categories outperformed their respective benchmarks, with just 27% of MENA Equity funds underperforming the broad S&P Pan Arab Composite (see Exhibit 1).

SPIVA® MENA Mid-Year 2022 - Exhibit 1

MENA 

  • For MENA Equity funds, 32% underperformed the S&P Pan Arab Composite LargeMidCap Index during the first half of 2022, while 27% underperformed the broader S&P Pan Arab Composite.
  • Fewer funds were able to maintain their record of outperformance over the 10-year period, with 91% of funds underperforming both benchmarks.
  • Funds in this category gained 6.76% and 8.33% on an equal- and asset-weighted bases, respectively, over a 10-year period, implying that larger funds performed relatively better than smaller funds on average.
  • Only 40% of the funds analyzed within the MENA Equity fund category survived the 10-year period.

GCC

  • Equity funds focused on the Gulf Cooperation Council (GCC) region fared similarly, with 37% underperforming the S&P GCC Composite over the six-month period.
  • Underperformance rates peaked over the five-year period, at 96%.
  • Smaller funds performed relatively better than larger funds over the 1-, 3-, 5-, and 10-year periods.

Saudi Arabia

  • For the six-month period, 31% of Saudi Arabia Equity funds underperformed the S&P Saudi Arabia.
  • Some funds will always do better than average, and others worse, but fund selection risk was particularly heightened among Saudi funds, with an interquartile range of 12% among one-year fund performances.
  • The survival rates of active funds in Saudi Araba were the highest among all categories, with 85% of funds surviving over the 10-year period.

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