SPIVA Australia scorecard shows most active funds lagged respective index benchmarks

– The SPIVA Australia Scorecard reports on the performance of actively managed Australian mutual funds versus that of their benchmarks, showing equal- and asset-weighted peer averages.

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SUMMARY

– The index versus active debate has been a contentious subject for decades, and there are strong opinions on both sides. The SPIVA Australia Scorecard is the de facto scorekeeper of this debate.

– There are no consistent trends to be found in annual active versus index figures. The only consistent data point we have observed over a five-year horizon is that the majority of active equity funds in most categories fail to beat their comparable benchmark indices.

– The majority of funds in all categories, except Australian small-cap funds, were outperformed by their respective index benchmark over the one-, three- and five- year periods as of June 2014. International equity and Australian bond funds had the lowest relative performances over the one-year period, with close to 80% of funds underperforming the S&P Developed Ex-Australia LargeMidCap and S&P/ASX Australian Fixed Interest Index.

– Australian General Equities: The majority (66.1%) of Australian large-cap equity funds underperformed the S&P/ASX 200 Accumulation Index in the one-year period, which has been consistent for the past three- and five-year periods (65.6% and 74.9%, respectively). The return for the S&P/ASX 200 Accumulation Index exceeded both the equal- and asset-weighted average fund returns for the past one-year period.

– Australian Small-Cap Equities: Australian small-cap funds delivered remarkable returns over the one-year period, with both the equal- and asset-weighted average returns exceeding the S&P/ASX Small Ordinaries return. The majority of active funds in this category outperformed the benchmark, with only 8.2%, 7.7% and 17.1% of funds failing to beat the benchmark in the past one-, three- and five-year periods, respectively.

– International Equities: Only around one-fifth of international equity funds enjoyed equal or higher returns compared with the S&P Developed Ex-Australia LargeMidCap, and the majority of active funds in this category underperformed the index in the past one-year period. This observation has also been consistent over the past three and five years.

– Australian Bonds: In the one-year period, 80% of Australian bond funds underperformed the S&P/ASX Australian Fixed Interest Index. The S&P/ASX Australian Fixed Interest Index returns outpaced the equal-weighted average returns of funds in this peer group across all observed periods.

– Australian A-REITs: The S&P/ASX 200 A-REIT outperformed 54% of A-REIT funds in the one-year period, and both the equal- and asset-weighted average returns exceeded the index return over the same period. However, performance of A-REIT funds was less promising over the longer periods. In this category, 80% and 78.8% of active funds underperformed the index over the three- and five-year periods, respectively, and their equal- and asset-weighted average returns failed to exceed benchmark returns for both periods.

– Fund Survivorship: Over 97% of active funds in each of the peer groups observed in this report survived more than one year. However, all fund categories had survivorship rates below 84% when extending the observation period to five years. Australian small-cap funds had the highest survivorship rate, while international equity funds had the lowest rate among all categories over the five-year period.

– Equal-Weighted Average Fund Returns: Australian general equity, international equity and Australian bond funds recorded lower equal-weighted average returns than the benchmark across all observed periods. Australian small-cap funds, on the other hand, consistently delivered higher equal-weighted average returns than the benchmark across the one-, three- and five-year periods.

– Asset-Weighted Average Fund Returns: Asset-weighted average returns in all fund categories exceeded their respective equal-weighted average returns over the three- and five-year periods, showing that larger funds delivered higher returns than smaller funds across all of the measured peer groups.