SPIVA Scorecard: The Index Wins Again
The annual review of Active fund managers against their relevant benchmark to June 2018 was released recently by leading ratings agency S&P. The S&P Indices vs Active Management or SPIVA report is considered to be the leading industry report when considering the efficacy of active managers who try to ‘beat’ the market through either market timing or stock selection.
Long term clients of APC will know that for many years we have relied on the ‘evidence’ to underpin our investment methodology of tilting our portfolios to Small and Value companies. This latest report continues to support our view that these sectors deliver superior performance to Large companies and the broader market over time and that active management does not consistently deliver superior performance against benchmark after manager fees.
The table below provides a summary of some of the key findings of the report. Note the performance of Small companies over Large (S&P/ASX 200 and S&P Developed ex-Australia LargeMidCap). Also note the percentage of managers who beat their index over 1 year. Over 3 years the percentages fall even further.
The report also looked at performance persistence of outperforming funds, finding that only a minority of high-performing funds could maintain out-performance against the index or peers for three or more years. This supports the theory that ‘active management outperformance’ it is often more luck than skill.
Among the top quartile funds in the 12-month period ending June 2014, only 2.2 per cent maintained a top quartile rank in the following four years and only 4 per cent consistently beat their benchmark over the four years.
Of the 303 Australian funds that outperformed their respective benchmark in the five-year period ending June 2013, only 27.7 per cent continued to outperform in the following five years.
“Overall, results from various evaluation matrices suggest weak performance persistence among top-performing funds in Australia. Actively managed winning streaks are often short-lived,” the report says.