Financial Happenings Blog
Sunday, April 10 2011
Back in March, Standard & Poor's published the latest Standard & Poor's Indices Versus Active Funds Scorecard (SPIVA) for Australia for the period ending 31st December 2010. The scorecard again showed the failure of active fund managers (on average) to beat the underlying index for Australian, international, fixed income and A-REIT managers. The only sector to perform better than the index (on average) was small cap managers.
The following is taken directly from the media release:
- Over the five-year period, a majority of active funds (across most of the peer groups in this study) have failed to beat their respective benchmarks. With the exception of active Australian small-cap equity funds, more than 60% of all active funds underperformed relative to their benchmarks over a five-year period. The results are mixed for shorter time periods studied in this SPIVA� Scorecard.
- The S&P/ASX 200 Accumulation Index has outperformed active Australian equity funds over every time period studied. The S&P/ASX 200 Accumulation Index has outperformed approximately 71% of active Australian Equity General Funds over the last 5 years, increasing to approximately 81% over the last year. In spite of this result, Australian Equity funds enjoy the 2nd highest survivorship rate, relative to other peer groups, over periods of a minimum of one year.
- A large majority of active Australian equity small-cap funds have beaten the S&P/ASX Small Ordinaries Index across most of the time periods studied. Over 70% of Australian equity small-cap funds beat the S&P/ASX Small Ordinaries Index over a five-year period. However a similar majority underperformed relative to the benchmark over the last quarter.
- The percentage of active international equity funds that failed to beat the MSCI World ex Australia Index is generally consistent across all periods studied in this report. At least 60% of active international equity funds underperformed relative to the benchmark over every time horizon. Over a five-year period, the index has outperformed approximately 74% of actively managed international equity funds.
- A majority of Australian Bond funds have underperformed relative to the UBS Composite Bond Index across all time periods. At least 80% of active Australian Bond funds have failed to beat the benchmark over periods of three years or more. Correspondingly, this peer group suffered the lowest survivorship rate of the same period.
Our approach at A Clear Direction has to base portfolios on large index exposures and build around these exposures to small and value companies and Emerging markets all with an index-like approach.
The one area of out-performance by active managers has been in the small cap asset class. The trust that we use to gain this exposure for clients, Dimensional's Australian Small Company Trust, has also beaten the S&P Small Ordinaries Accumulation index over all time periods with the 5 year result realising a 4.27% better annualised result after fees. The average active manager achieved a 2.45% better return.
This research conducted by S&P provides further evidence that an approach to building investment portfolios based around low cost and extremely well diversified indices with exposures to small and value companies and Emerging Markets will provide clients with a favourable investment experience.
Regards,
Scott
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