EU actively managed funds underperform S&P benchmark

  • Viola Caon
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S&P Dow Jones Indices has for the first time conducted a report that measures the performance of actively managed European equity funds against their respective S&P benchmark over 1, 3 and 5 year investment horizons.

The S&P Indices Versus Active Funds (SPIVA) Scorecard – Europe,with data as of year-end 2013, shows that a majority of the Euro denominated actively managed funds investing in European equities underperformed their respective S&P benchmark. Similarly, over three-quarters of the funds investing solely in eurozone equities failed to keep pace with their benchmark.

However, the S&P Indices Versus Active Funds (SPIVA) Scorecard – UK highlighted that the majority of actively managed GBP denominated funds investing in UK and European equities outperformed their benchmarks in 2013, as well as over mid- and longer-term investment horizons,  in sharp contrast to Euro denominated actively managed funds.

More in detail, data show that in 2013:

o   60.69% investing in European equities underperformed

o   78.92% investing in eurozone equities underperformed

o   70.52% investing in emerging markets underperformed

o   60.56% investing in US equities underperformed

The past year ending December 31, 2013 saw a remarkable rebound in global equity markets as measured by the S&P Global 1200 and S&P United Kingdom indices, which posted gains of 20.66% and 19.08% respectively.  During the same period, the majority of actively managed GBP denominated funds investing in UK equities (88.97%) and European equities (62.50%) outperformed their benchmarks.

As the S&P Dow Jones Indices research also showed, the same trend can be seen over mid- and longer-term investment horizons, indicating that active management opportunities are present in the GDP denominated funds space. More than 77% investing in UK equities and nearly 74% investing in European equities outperformed their benchmarks over three years.

In sharp contrast, 60.69% of the Euro denominated actively managed funds investing in European equities underperformed against the S&P Europe 350 Index. Similarly, over three-quarters of the funds investing solely in eurozone equities failed to keep pace with the respective benchmark.

The longer-term performance figures do not favour actively managed funds investing in European and eurozone equities.  More than 63% of the European equity funds and nearly 66% of the eurozone equity funds saw their performance lag behind the benchmarks over the five year measurement period.

While looking at international equities S&P said:  “The results for international equities were unequivocal.  Across all categories studied, actively managed funds failed to keep pace with their corresponding benchmarks.  The pattern is consistent across the various time horizons.

According to the report, fund managers also failed to take advantage of volatile emerging markets: “2013 was a turbulent year for emerging markets equities as the major headline indices representing the space declined.  During that period of heightened volatility and wide return dispersion, active managers failed to translate opportunities into relative outperformance, with 70.52% underperforming the benchmark.

“It is often believed that in less efficient markets such as emerging markets equities, active investing works better because of its ability to take advantage of perceived mispricings.  The results for emerging markets funds dispel this myth as the significant majority of funds – regardless of the currency denomination – underperformed the benchmark across all three time horizons,” the report also said.

 

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