The latest SPIVA scorecard is out, and it has something for everyone. The report, which measures the performance of actively managed funds versus their index benchmarks, showed that active continued to lag passive over the past year.
That said, while most active equity funds lagged their benchmarks, the number of active funds that outperformed jumped significantly.
In the one-year period ending on June 30, 2017, 43.4% of large-cap U.S. equity funds outperformed the S&P 500. In the same period, 39.3% of midcap U.S. equity funds outperformed the S&P MidCap 400, and 40.4% of small-cap U.S. equity funds outperformed the S&P SmallCap 600.
That's quite the improvement from just six months prior, when "over 80% of funds underperformed and displayed large performance deviations from their cap-weighted benchmarks," wrote the report’s authors.
How significant is the shift?
"In the short term, it’s quite a turnaround," noted Ryan Poirier, senior analyst of global research and design at S&P Dow Jones Indices, and co-author of the SPIVA U.S. Scorecard.
"Beginning H1 2016 through H1 2017, active managers performed overall progressively better each six-month period.” he said. “At this time last year, more than 90% of domestic equity funds underperformed their respective benchmarks; for midyear 2017, that figure has dropped to nearly 48% underperformance."
According to Poirier, the last time domestic equity funds outperformed their benchmarks on a calendar-year basis was in 2013.
The latest figures may give ammunition to proponents of active management, who believe that stock-picking can lead to superior returns.
"Active managers established momentum beginning the second half of 2016, and the rest of the year will determine whether they can sustain that momentum and outperform for a full calendar year," noted Poirier. "As we have seen since we’ve published the SPIVA Scorecard in 2002, short-term performance is less predictable and dependent on market dynamics."
Still, the latest SPIVA report cautions that over long-term time periods, the evidence suggests that most actively managed equity funds underperform their benchmarks.
For example, over the past five years, only 17.6% of large-cap funds outperformed, as well as 12.8% of midcap funds and 6.2% of small-cap funds.
The data is even starker over the 15-year period, over which only 5-7% of funds managed to beat their benchmarks.
Int’l Returns Improve
Meanwhile, the SPIVA data showed that the uptick in active performance also extended to international equity funds. In the past year, about 43.8% of active global funds outperformed; 22.2% of active international funds outperformed; 53.9% of active international small-cap funds outperformed; and 24.6% of active emerging markets funds outperformed.
Those aren't stellar numbers by any means, but represent an improvement from previous SPIVA scorecards.
"Like other categories, international equity fund performance varies, as they do much better in a three-year time frame than a 15-year time frame," pointed out Poirier. "While U.S. equity markets performed well for the first half of 2017, some international equity markets rose even higher, creating a more difficult outperformance environment for active managers."
Fixed Income’s Dramatic Turnaround
The area where active management seems to suddenly be firing on all cylinders is fixed income. A whopping 95.6% of investment-grade long funds outperformed their benchmark, the Barclays U.S. Government/Credit Long Index.
That's quite a swing for the group, when you consider that, in the past three years, only 2.25% of those funds outperformed.
"The yield curve went through a twist around the five-year, which created opportunities for active managers to implement their interest rate views and management techniques," Poirier explained.
Fixed-income funds targeting other areas didn't see as dramatic of a swing in relative performance. Only 16.7% of actively managed high-yield funds outperformed during the past year, for example—a similar result to the last SPIVA scorecard.
Contact Sumit Roy at [email protected]