50.9% of European equity funds underperform S&P Europe 350 over a year

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Index and research provider S&P Dow Jones has released its bi-annual S&P Indices Versus Active Funds (Spiva) Europe Scorecard results over the period running from June 2016 to June 2017.

The research has found out that 50.9% of active euro-denominated European equity funds have underperformed the S&P Europe 350 benchmark over this period of time.

Though the situation is improving as a massive decrease shall be noted in the number of underperforming active European equity funds.  In its previous Scorecard results (year-end 2016), S&P reported that at the end of December 2016 some 80.4% of active euro-denominated European equity strategies were found unable to outperform the S&P Europe 350 index.

The S&P Europe 350 returned 18.6% over the one-year period from June 2016 to June 2017 while S&P stresses Euro-denominated active funds investing in this universe showed an average, asset-weighted performance of 17.6%.

Over the past ten years, the majority of active fund categories in Europe have underperformed, S&P’s study notes.

Commenting on the study, Andrew Innes, associate director, research and design, S&P Dow Jones Indices, said: “We are in a risk-on environment, and one would expect that size, namely small cap stocks, would do well. In individual countries, where active funds beat the benchmark, the average stock return typically beat the benchmark too. This indicates that in general the performance of smaller companies did better than larger companies.

“For instance, in Europe, the annual return of the average stock within the benchmark was 23.3%, represented by the S&P Europe 350 Equal Weight Index.  Since the market-cap weighted S&P Europe 350 had a one-year return of 18.6%, this means that the mean return of a large group of randomly weighted portfolios would have likely outperformed the S&P Europe 350 by a significant margin.

“One could conclude that fund managers less exposed to large companies would have done well over the past year. However, over the 10 year period, 72%, 79%, 84% of actively managed funds in UK, Germany and France respectively failed to beat the benchmark.”