Last year 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 per cent and 19.08 per cent respectively.
During 2013, the majority of actively managed GBP denominated funds investing in UK equities (88.97 per cent) and European equities (62.50 per cent) outperformed their benchmarks.
The same trend can be seen over mid- and longer-term investment horizons, according to the inaugural S&P Indices Versus Active Funds (SPIVA) Scorecard – Europe, indicating that active management opportunities are present in the GDP denominated funds space. More than 77 per cent investing in UK equities and nearly 74 per cent investing in European equities outperformed their benchmarks over three years.
In sharp contrast, 60.69 per cent 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 per cent of the European equity funds and nearly 66 per cent of the Eurozone equity funds saw their performance lag behind the benchmarks over the five year measurement period.
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.
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 per cent 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.
Unlike emerging markets equities, 2013 was a blockbuster year for US equities as record gains were posted. However, over 60 per cent of the funds investing in US equities failed to deliver better returns than the S&P 500. Viewed over medium- to longer-term horizons, the results show the overwhelming underperformance of the actively managed funds relative to the benchmark.
Results from the five-year asset-weighted and equal-weighted returns highlight that for most of the categories, the size of the fund matters. Asset weighted returns are higher for all the categories except for funds investing in French and US equities.
The volatility in the European equities market over the past five years resulted in nearly 30 per cent of the European equities and global/international equities funds merged or liquidated.