Just over half of actively managed Australian equity general funds performed better than the S&P/ASX 200 in the first six months of the year.
According to the Mid-Year 2022 SPIVA Australia Scorecard from S&P Dow Jones Indices, 49.8 per cent of large cap domestic active managers underperformed the benchmark amid broad-based declines in equities and fixed income securities globally.
During the half, the S&P/ASX 200 fell by 9.9 per cent, while Australian equity general funds dropped 10.0 per cent on an equal-weighted basis and 11 per cent on an asset-weighted basis.
“The S&P/ASX 200 exhibited high dispersion and elevated volatility in the first half of the year,” noted S&P Dow Jones Indices director of index investment strategy, Benedek Vörös.
“Wide dispersion underscored the significant fund selection risk that investors may have faced for the same period. Indeed, at the mid-year point, our scorecard shows the likelihood of any one large-cap Australian active manager outperforming was statistically equivalent to a coin flip. The data still suggests that such a balance is unlikely to persist over the long term.”
S&P Dow Jones Indices reported that the rate of underperformance increased to 73.6 per cent over five years, 77.2 per cent over ten years and 82.9 per cent over 15 years.
Domestic mid and small cap managers had a higher rate of underperformance than their large cap counterparts over the short term, with 68.2 per cent of funds performing worse than the S&P/ASX Mid-Small index in the first six months of 2022.
The S&P/ASX Mid-Small was down 20.3 per cent compared to falls of 24.2 per cent and 26.0 per cent for the mid and small cap funds on an equal and asset-weighted basis, respectively.
However, these funds fared significantly better over the longer term, with 51.0 per cent underperforming their benchmark during the past 15 years.
Turning to international equity general funds, 56.9 per cent were beaten by the S&P Developed Ex-Australia LargeMidCap in the first half.
More than 85 per cent of the funds were reported to have underperformed over five years, increasing to more than 95 per cent over 15 years.
As part of its analysis, S&P Dow Jones Indices also reported on the rates of survivorship among the different types of funds.
Around 5.3 per cent of Australian equity general funds, 4.7 per cent of international equity general funds and 2.7 per cent of Australian equity mid and small-cap funds failed to survive in the 12 months to June.
Meanwhile, more than half of funds in the Australian equity general and international equity general categories merged or liquidated over the past 15 years.
Mr Vörös noted that underperforming funds tended to suffer withdrawals, potentially leading to their eventual demise, and highlighted an interaction between survivorship and outperformance.
“In the Australian Equity Mid and Small-Cap fund category, the majority of surviving funds outperformed the S&P/ASX Mid-Small, and even in the Australian large-cap segment, over one-third of surviving funds outperformed the S&P/ASX 200,” he said.
“However, the laws of natural selection did not seemingly apply to International Equity General funds, with almost 90 per cent of surviving funds underperforming the S&P Developed Ex-Australia LargeMidCap.”
He suggested that this difference could be explained by the greater familiarity that local investors have with domestic performance standards compared to those internationally.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
