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SPIVA® South Africa Year-End 2020

Risk-Adjusted SPIVA® Scorecard: Year-End 2020

SPIVA® Europe Year-End 2020

SPIVA® Canada Year-End 2020

SPIVA® U.S. Year-End 2020

SPIVA® South Africa Year-End 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 one-, three-, and five-year investment horizons. 

YEAR-END 2020 HIGHLIGHTS

South African Equity

Over 78% of South African Equity funds underperformed the S&P South Africa 50 over the one-year period.  Comparing the same funds with a broader benchmark, namely the S&P South Africa Domestic Shareholder Weighted (DSW) Capped Index, 44% of funds underperformed.  Over the five-year time horizon, the percentage of funds that underperformed the S&P South Africa 50 and the S&P South Africa DSW Capped Index increased to 95% and 60%, respectively.

The struggle for South African Equity funds to keep pace with the S&P South Africa 50 is further highlighted by the fact that even funds in the 75th percentile performed 0.9% below the benchmark for the one-year period.  Furthermore, on an asset-weighted basis, South African Equity funds trailed the same benchmark by 3% annualized over five years.  Even on a risk-adjusted basis, the same funds had a lower return-to-volatility ratio over the three- and five-year periods.

South African Equity funds had a poor start to 2020, falling 10% by the end of February.  Things did not improve with the onset of COVID-19, as March 2020 saw the single biggest monthly loss in the past five years, with the asset-weighted South African Equity fund category and the S&P South Africa DSW Capped Index dropping 16.5% and 16.1%, respectively.  This was followed by an immediate rebound in April 2020, when they posted their single biggest monthly gains in the past five years of 14.5% and 15.0%, respectively.  Over the course of 2020, South African Equity funds and benchmarks continued to recover slowly and, aided by news of a vaccine in November, these funds were able to post positive returns for the year on an asset-weighted basis.

Global Equity

Global Equity funds were likely aided by a significant depreciation in the South African rand during the first four months of 2020, as they were able to avoid large drawdowns seen elsewhere and ultimately posted much stronger results than their domestic-focused counterparts, finishing the year up 19.7% on an asset-weighted basis.  Despite this strong performance, they still trailed the S&P Global 1200 benchmark by 1.7%, and 66% of funds were unable to beat the benchmark over the one-year period.  Over the five-year time horizon, the outlook was no better, as on an asset-weighted basis, the funds trailed the benchmark by 2.16%, annually, and 93% of funds were unable to beat the benchmark. 

Fixed Income

Over the one-year period, 84% of Diversified/Aggregate Bond funds failed to beat the S&P South Africa Sovereign Bond 1+ Year Index.  Short-Term Bond funds fared better, with only 17% failing to beat the benchmark.  However, when measuring outperformance on a risk-adjusted basis, we saw that more than 92% of Short-Term Bond funds failed to beat the benchmark over the one-year period.  The return-to-volatility ratio for the benchmark was also far greater than that of asset-weighted Short-Term Bond funds, indicating that for each unit of risk, the benchmark was able to generate greater returns.

In the battle of allocation between fixed income and equity, we saw that fixed income funds were able to deliver higher annualized asset-weighted returns over the medium- and long-term periods than South African Equity funds.  Importantly, over the same periods the return-to-volatility ratio for fixed income funds was many multiples higher, indicating that, despite posting a higher return, fixed income funds were far less risky than South African Equity funds. 

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Risk-Adjusted SPIVA® Scorecard: 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

Since 2002, SPIVA scorecards have shown that active funds typically underperform their benchmarks on an absolute return basis. However, active funds could compare favorably to passive investments after adjusting for volatility, if lower active returns were a consequence of risk reduction.

The Risk-Adjusted SPIVA Scorecard considers this possibility by comparing the risk-adjusted returns of actively managed funds against their benchmarks on a net-of-fees and gross-of-fees basis. We use the standard deviation of monthly returns as a measure of risk and evaluate performance by comparing return/volatility ratios.

After a relatively quiet decade following the Global Financial Crisis, volatility returned with a vengeance in 2020. Backed by fiscal and monetary stimulus, the S&P 500® gained 18.4% on the year, though this bout of volatility and positive returns did little to help the case for active management. After adjusting for volatility, the majority of actively managed domestic funds across market cap segments underperformed their benchmarks on a net-of-fees basis over mid-and long-term investment horizons.

Exhibit 1

Mid-cap and small-cap growth funds were interesting exceptions in a sea of underperformance. Over a five-year period, nearly two-thirds of funds in both categories outperformed, whereas only one-quarter of large-cap growth funds outperformed. Active managers focusing on smaller-capitalization companies may have skewed their portfolios toward the market-leading larger companies recently, but this peculiarity faded away over the long term. Over the 10- and 20-year periods, mid-cap and small-cap growth funds reverted to form and matched their large-cap compatriots, with fewer than 10% managing to outperform in any of the three categories.

Naturally, the risk-adjusted performance of active funds improves on a gross-of-fees basis, but even then, outperformance is scarce. Viewed over a five-year period, a majority of funds in only 6 of the 18 domestic equity categories tracked were able to outperform their benchmarks. Over a 20-year window, only two domestic equity categories showed the majority of funds outperforming their benchmarks.

As in the U.S., the majority of international equity funds across all categories generated lower risk-adjusted returns than their benchmarks when using net-of-fees returns over the previous five-year period. International equity funds also matched their domestic peers over the longer term, as fewer than 15% surpassed their benchmarks over a 20-year horizon. On a gross-of-fees basis, the only bright spot was international small-cap funds in the 10-year window, of which 64% cleared their hurdle rate.

When using net-of-fees risk-adjusted returns, the majority of actively managed fixed income funds in most categories underperformed across all three investment horizons. The only exceptions were government long funds and investment-grade long funds over the 5- and 10-year periods.

The importance (and performance-sapping nature) of fees is well highlighted when analyzing fixed income fund performance in a low-yield world. A respectable 9 of the 14 fixed income categories showed a majority of funds outperforming their benchmarks on a gross-of-fees basis over the past 15 years.

On a net-of-fees basis, asset-weighted return/volatility ratios for active portfolios were higher than the corresponding equal-weighted ratios, indicating that larger firms have taken on higher-compensated risk than smaller ones. On an asset-weighted basis, large-cap value, small-cap value, mid-cap core, multi-cap value, and REIT funds were the only domestic equity categories to provide better return/volatility ratios than the benchmark over 20 years. On an equal-weighted measure, this fell to just three categories: large-cap value, small-cap value, and real estate funds.

Most fund categories produced higher return/volatility ratios than their benchmarks, gross of fees, on an equal-weighted basis. However, their outperformance diminished once fees or fund size were accounted for, especially in domestic and international equity funds. In general, equal-weighted return/volatility ratios improved more than the corresponding asset-weighted ratios when fees were ignored, indicating that fees play a more prominent role in smaller funds' performance.

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SPIVA® Europe Year-End 2020

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Andrew Innes

Head of EMEA, Global Research & Design

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Andrew Cairns

Associate Director, Global Research & Design

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Alberto Allegrucci

Senior Research 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.  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.

YEAR-END 2020 HIGHLIGHTS

The year 2020 proved to be a tumultuous one for European investors, with COVID-19 and subsequent national lockdowns grinding the economies of Europe to a halt.  The uncertainty surrounding the pandemic provided an ideal opportunity for active fund managers to prove their worth in what was an extremely volatile period.

  • Of active euro-denominated Europe Equity funds, 37% underperformed the S&P Europe 350® in 2020. This figure rose to 75% over 5 years and 86% over 10 years.

As the first wave of COVID-19 peaked in March 2020, the S&P Europe 350 benchmark saw its biggest single-month loss in more than 10 years.

  • Active fund investors were not immune to the troubles; on an asset-weighted basis Europe Equity funds also suffered their largest single-month loss in more than 10 years. This tail-risk event was similarly seen in 13 of the remaining 22 fund categories and 19 of the 22 benchmarks.

The sharp drawdown was followed by a modest recovery, aided by monetary and fiscal stimulus packages swiftly assembled by central banks and governments.  As the first wave of COVID-19 began to settle, markets calmed and grew at a steady pace over the summer months.  News of a vaccine broke in early November and immediately sent markets soaring.

  • The renewed optimism saw the majority of fund categories and benchmarks post their largest single-month gains in the past 10 years. Out of 23 categories, 14 exhibited their largest single-month return in over 10 years when measured on an asset-weighted basis.  The same was true for 17 out of 23 benchmarks.

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SPIVA® Canada 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

Canada joined markets around the world facing extraordinary volatility in 2020, strongly selling off February highs before rebounding, as the scale and management of the pandemic grew clearer. The S&P/TSX Composite posted a respectable 5.6% gain for the year, and the smaller-cap names of the S&P/TSX Completion finished slightly ahead with a 6.0% return. However, both of these returns were well below the 16.3% gained by the S&P 500® (CAD) and other global benchmarks.

Although this volatile period offered ample opportunity for stock-pickers to shine, 88% of Canadian Equity funds underperformed their benchmark in 2020, in line with the 84% that did so over the past 10 years. This shortfall was widespread, as a majority of funds underperformed in five of the seven categories in 2020. Over the past decade, a majority of managers in every fund category lagged their benchmarks (see Report 1).

Exhibit 1

Canadian Equity funds were particularly notable for their level of underperformance. On an equal-weighted basis, Canadian Equity funds returned a bleak 4.8% below the S&P/TSX Composite over the past year, the worst relative performance of any fund category (see Report 3).

Canadian Small-/Mid-Cap Equity funds had a banner year, as just 22% failed to beat the S&P/TSX Completion. These funds were particularly deserving of praise for gaining an average of 14.3% on an equal-weighted basis—8.3% clear of the benchmark. Results were somewhat less triumphant over longer horizons though, as 71% and 91% of funds fell short over the three- and five-year periods, respectively (see Reports 1 and 3).

Canadian Dividend & Income Equity funds took second place among fund categories, with just 44% lagging the S&P/TSX Canadian Dividend Aristocrats® Index in 2020. This was also the only category with negative returns for 2020; the index lost 2.3% on the year, and on an equal-weighted basis, the funds lost 1.2%. This picture reverted to form over the 10-year horizon, as the index led (7.1% annualized return) and the funds followed (5.3% annualized return, with 91% of funds performing worse than the index; see Reports 1 and 3).

Among Canadian Focused Equity funds, 71% lagged the blended benchmark, which comprises the S&P/TSX Composite (50%), the S&P 500 (CAD) (25%), and the S&P EPAC LargeMidCap (CAD) (25%). Canadian Focused Equity funds were also notable for having the worst chances of beating the index over the 10-year period, with just 4 of 128 funds (3.1%) surpassing the blended target. Asset allocators punished these funds heavily, as only 37% of funds survived the decade, the worst survivorship of any category (see Reports 1 and 2).

Funds looking outside of Canada provided some respite from poorer domestic returns, although active management still broadly failed to add value. U.S. Equity funds posted the highest returns over the past year, with a 13.6% gain on an equal-weighted basis and 17.4% on an asset-weighted basis. However, 69% of funds failed to clear the returns of the S&P 500 (CAD) over the past year. Similarly, U.S. equities offered the best returns over the past decade, with the S&P 500 (CAD) gaining 16.8% per year, but active funds were unable to keep up: 95% fell short, by an average of 4.1% per year on an equal-weighted basis (see Reports 1, 3, and 4).

International Equity funds did slightly better on a relative basis over the past year, with 60% underperforming. Nonetheless, the average equal-weighted performance was 7.0%, well shy of the 9.0% gain of the S&P EPAC LargeMidCap (CAD). Global Equity funds put up a feeble defense of active management, with 78% underperforming the 14.9% gain of the S&P Developed LargeMidCap, with an average equal-weighted performance of just 10.8% (see Reports 1 and 3).

Larger funds in Canada tended to outperform their smaller counterparts, as 22 of the 28 results showed higher asset-weighted returns across the seven fund categories and four time horizons studied (see Reports 3 and 4).

The SPIVA Scorecards' accounting for survivorship bias continues to provide a valuable caution for asset allocators, as 54% of all funds in the eligible universe 10 years ago have since been liquidated or merged (see Report 2).

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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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