Almost two-thirds of the more than 8,400 active funds included in a S&P Dow Jones Indices (S&P DJI) global database underperformed their respective benchmarks during the first six months of 2024.
The half-year S&P DJI SPIVA scorecard shows active equity managers flailed against strong index-based tides pulled to record highs by just a handful of US mega-stocks.
“Accompanied by the outperformance of the very largest companies, the first half of 2024 proved to be a particularly difficult market environment for active managers across developed equity markets,” the S&P DJI report says. “A majority of Global Equity funds domiciled in the U.S., Europe, Japan, Canada and Australia underperformed the S&P World Index, with underperformance rates all falling within the range of 70%-85%.”
The gravitational pull of a few US large-cap companies – as per the ‘mag 7’ cohort of recent times – is more than a short-term blip, too.
“… over the past 10-, 5-, 3- and 1-year time horizons, active managers benchmarked to the S&P 500 and S&P World Index would have likely been facing headwinds arising from the combined facts that their benchmarks had historically elevated weights in the largest companies, and that over the periods ending June 2024, those same largest companies considerably outperformed their smaller competitors,” the S&P DJI paper says.
In fact, the rising proportion of US stocks in the S&P World Index – which jumped from 47 per cent in 2009 to 70 per cent as at June 30 this year – likely explained why offshore-based active global equity funds underperformed more than their US-domiciled counterparts.
International share managers may have performed worse than US-based global equity funds “because they were systematically underweight the U.S. market, focusing more instead on their local opportunity set”, the report says.
But the SPIVA study did identify a few positive stock fund outliers including US-domiciled small-caps where 85 per cent of active managers beat the index over the six-month period. Active managers also posted strong benchmark-relative results in Middle Eastern, Mexican and South African markets.
Active fixed income managers, though, generally came out ahead versus their respective benchmarks during the first six months of 2024, the study found.
“Overall, we report majority outperformance in 9 out of 12 fixed income categories, including the lowest underperformance rate reported in this scorecard—just 13% of U.S.-domiciled Investment Grade Short and Intermediate Bond funds underperformed the iBoxx $ Overall 1-5 Year Index.”
The S&P DJI report also includes an aggregated global analysis of active fund relative performance for the first time, over several time-periods stretching back to 10 years. During the 10-year period to June 30 this year, over 90 per cent of active global equity funds and more than 80 per cent of domestic share funds underperformed their respective indices while fixed income managers fared only slightly better with 80 per cent missing the benchmark, according to the SPIVA data.
About 72 per cent of active Australian funds investing in global shares underperformed the index over the six months to June 30 this year, the S&P DJI study says, but domestic-focused managers saw better results over the period.
“While a slim majority (52%) of Australian Equity General funds outperformed the S&P/ASX 200, Australian Mid/SmallCap funds had better results with about two-thirds of the funds beating the S&P/ASX Mid-Small,” the report says. “This may be partially attributed to a predilection for funds in the Mid/SmallCap category to hunt for excess returns among the very smallest names.”
The latest S&P DJI study – co-authored by a panel including SPIVA head, Davide Di Gioia he does not cover the NZ market. However, in its inaugural take on the market published earlier this year, the SPIVA analysis found the median active NZ equities manager outperformed over all periods up to 15 years.