About a fifth of Australian funds sustained outperformance records over long-term periods to the end of last year, according to new research from S&P Dow Jones.
The S&P research, which matches a similar study the index provider carries out in the US, found that of the Australian-domiciled benchmark-beaters across all asset classes, almost 17 per cent and 22 per cent outperformed over two successive three- and five-year periods, respectively, ending December 31 last year.
“Out of the 325 Australian funds that outperformed in the five-year period ending December 2013, over 61.2% underperformed their respective benchmark and 16.9% were merged or liquidated in the following five years (December 2013-December 2018),” the S&P report says.
While the data suggests about 70 of the 631 Australian funds tracked over the 10-year stretch outperformed consistently, there was little encouragement for contrarian investors in the study.
Of the 306 funds that were below benchmark over the five years to the end of 2013, just 11.1 per cent turned in above-index results for the following five-year period.
“None of the fund categories exhibited strong performance persistence, with International Equity General funds having the lowest tendency to outperform over the two successive five-year periods,” the S&P study says.
However, by another gauge – year-on-year outperformance across three- and five-year periods – the S&P data was less flattering for active Australian managers.
“Of outperforming funds, 6.5% and 1.3% consistently beat their benchmarks consecutively over three and five years, respectively,” the report says. “The Australian Equity A-REIT category had the highest persistence in terms of its outperforming funds (15.8%) over three consecutive years, but no fund categories showed high persistence in their outperforming funds over five consecutive years.”
Even maintaining a top-quartile berth year after year proved challenging with just 9.7 per cent of the tracked funds staying up for two consecutive three-year periods and 2.2 per cent repeating the feat over two five-year periods.
“Top-quartile funds in the Australian Bonds category had the lowest turnover for both periods,” the S&P study says. “… top-quartile funds in the Australian Bonds category had the highest persistence, while the Australian Equity Mid- and Small-Cap funds had the least persistence over two non-overlapping three- and five-year periods.”
As a rule, long-term underperformers face a higher chance of merger or wind-ups than their peers, the S&P data shows: just over 23 per cent of below-benchmark funds over the 10 years ending December 31, 2018, were merged or liquidated compared to almost 17 per cent of the outperformers that shared the same fate.
The report – compiled by S&P head of global research and design, Priscilla Luk – is based on the group’s SPIVA Australia Scorecard, a twice-yearly study “that tracks the number of active Australian funds that beat their comparable benchmarks over short- and long-term horizons”.