The median NZ shares fund manager outperformed the index after fees over all periods up to 15 years covered in a new S&P Dow Jones Indices (S&PDJI) report.
According to the S&PDJI ‘SPIVA’ Australia scorecard, the subset of NZ domestic equity managers – included formally for the first time in the researcher’s index v active fund survey – returned an annualised 11.45 per cent net of fees over the 15 years to the end of 2023 against the benchmark 10.27 per cent.
Local share managers also outperformed on average compared to the S&P/NZX 50 (dividends and imputation credits reinvested) over the 10-, five-, three- and one-year periods detailed in the SPIVA study.
The NZ results contrast with the Australian broad equity fund data that shows the median manager underperformed the S&P/ASX200 during all periods analysed.
However, by the favoured SPIVA metric that includes funds that closed or merged over the reporting period, only a quarter of the NZ share strategies outperformed by absolute return and 15 per cent on a risk-weighted basis.
“Many funds might liquidate or merge during a period of study,” the S&P study says. “This usually occurs due to continued poor performance by the fund. Therefore, if index returns were compared to fund returns using only surviving funds, the comparison would be biased in favor of the fund category.”
Tim Edwards, S&PDJI global head of index investment strategy, said the NZ funds that survived the 15-year period to post a long-term return “tended to be the better ones”.
The SPIVA report shows just under two-thirds of the 13 NZ share funds at the start of the 15-year stretch survived through to the end of last year. But the domestic equity scene has grown to include 24 funds in operation during 2023.
Edwards, who presented the SPIVA results at the Kernel Wealth conference in Auckland last week, said over the short-term – especially over the three-year period – NZ share managers have performed well by both metrics.
About two-thirds of the local equity funds beat the index during the three years to the end of 2023.
But he said the NZ data, admittedly a small sample set, conforms with the global SPIVA trends that show only a small percentage of funds consistently outperform over the long-term.
S&P has published the SPIVA scorecards for 20 years, starting in the US equity markets before spilling out to other jurisdictions and asset classes.
Edwards said bond funds, long considered less vulnerable to indexation, are also poised to fall under the benchmarking spell.
“Fixed income funds appear to be at the same point of transformation [to indexing] as equities were 20 years ago,” he said.
S&PDJI published a new paper last month, titled ‘The hare and the tortoise’, arguing the case of passive bond investing.
The rise of passive share funds has been “the most significant” trend in global investment markets during the last 20 years, Edwards said, with plenty of scope for further growth.
Despite conditions potentially favouring active stock-pickers in the last couple of years, he said the SPIVA data continues to show the market cap-weighted benchmark remains a tough hurdle.
“Every January and February active managers come out with articles saying this will be the year of the stock-picker,” Edwards said – a behaviour S&PDJI tracks.
The last year the majority of US large cap active managers outperformed the index was in 2009, he said.
Kernel attracted about 120 delegates to its inaugural adviser conference last week. The low-cost index fund provider has developed a number of bespoke strategies with S&PDJI including a NZ top 20 shares product and another following the 100 largest global stocks.