Latest report on active fund performance shows significant discrepancies across different market segments
While the US equity market has shown remarkable performance in 2019, it hasn’t necessarily translated into success for active managers.
According to the recently published SPIVA US Mid-Year 2019 Scorecard, the ability of active funds to outperform their respective benchmark indices varied significantly across different market segments.
Among all domestic US equity funds studied by S&P Dow Jones Indices (SPDJI), 71% underperformed the S&P Composite 1500 during the one-year period ending in June 2019, barely budging from their 69% underperformance record as of year-end 2018.
Focusing on large-cap funds, 70% lagged their benchmarks in one-year trailing performance as of mid-2019, compared to 64% that did so during year-end 2018. Mid-cap funds and small-cap funds did better, as just 36% of the funds in each category underperformed their respective benchmarks in June.
“The outsized success of the mid- and small-cap funds may be explained by the performance divergence of the benchmarks,” SPDJI Director for Global Research and Design Berlinda Liu said in a blog post. For the 12-month period ended in June 2019, the S&P 500 rose 10.4%; the S&P MidCap 400 posted a modest 1.4%, while the S&P SmallCap 600 dipped 4.9%.
“Active managers in the two smaller-cap categories may have sized up into larger-cap securities in order to boost returns,” Liu said.
The difference in outperformance was more pronounced among growth managers in the US equity fund space. The S&P 500 Growth Index outperformed 69.49% of large-cap growth managers during the one-year period ended in June. In contrast, only 12% of mid-cap growth funds underperformed the S&P Midcap 400 Growth index, and just 15.25% of small-cap growth funds lagged the S&P SmallCap 600 Growth benchmark.
But a look at the benchmark returns shows that the S&P500 Growth Index rose 12% in the 12-month period up to mid-2019. In contrast, the S&P MidCap 400 Growth benchmark crept up just 1.9%, while the S&P SmallCap 600 Growth index declined by 2.3%.
The broad underperformance observed across U.S. equity funds was mirrored by international equity mandates. According to the SPIVA scorecard report, the S&P 700 rose over 14% in the first six months of 2019, defying trade tensions surrounding the major economies of the US, China, and the UK.
“The strong market returns did not translate to success for international equity managers,” the report said, noting that 72% of international funds lagged the S&P 500.
Emerging-market managers managed a slightly better record, with 55% failing to beat the S&P/IFCI Composite.
On the fixed-income side, the scorecard found the majority of fixed-income active funds underperformed their benchmarks.
“Of particular note, all government long funds and loan participation funds underperformed their respective benchmarks over the one-year horizon,” Liu said. “This was in stark contrast to results from the SPIVA U.S. Year-End 2018 scorecard , when just 17% of government long funds and 57% of loan participation funds underperformed
