2024 painted a mixed picture for active managers in Australia, SPIVA’s latest Australian Scorecard has shown.
Notably, on the global equity general front, a large majority (85 per cent) of active managers failed to match the benchmark’s return – the second highest on record.
Underperformance rates for global equity managers also increased for longer terms, reaching a whopping 95 per cent over a 15-year period.
“Funds in the global equity general category, which has the largest number of available funds, struggled to keep pace,” SPIVA said.
This comes as global equities maintained their positive momentum in 2024, with the S&P/ASX 200 rising by 11.4 per cent, while overall developed equities, as measured by the S&P World, posted returns of 31.7 per cent in AUD terms.
“Global equity active funds faced more significant headwinds, as illustrated by the positive skew in the distributions of stock returns,” the report added, which showed an “unusually high” proportion, or 72 per cent, of constituents in the S&P World underperforming the index last year.
“When fewer stocks outperform, it becomes increasingly difficult for managers to identify them. In this context, it is perhaps not surprising to observe a higher-than-average underperformance rate among global equity general funds in 2024.”
According to the scorecard, a similar trend was observed in the Australian Equity A-REIT category, which recorded the highest underperformance rate among all reported segments, at 86 per cent.
Notably, active managers within this category needed to compete with the S&P/ASX 200 A-REIT index’s 18.5 per cent return in 2024.
SPIVA added: “This category also exhibited the lowest survivorship, with 9 out of 51 funds either merged or liquidated during the year. Over the 15-year period, 87 per cent of funds underperformed.”
In the middle of the pack, Australia equity general funds fared relatively better, with a 56 per cent underperformance rate.
With the S&P/ASX 200 finishing the year with an 11.4 per cent gain, the underperformance of active funds within Australia closely aligned with its long-term average of 58 per cent. Over a 15-year span, 85 per cent of active funds fell short of the benchmark.
Commenting on the results, SPIVA noted that Australia large caps continue to dominate the market, with the top 20 stocks’ weight in the S&P/ASX 200 remaining elevated at 63 per cent by year’s-end.
“This situation presented challenges for the Australian large-cap active equity managers seeking opportunities outside of the stocks most heavily weighted.”
But it was active funds within the Australian bonds and Australian equity mid- and small-cap segments that really shined in 2024, achieving underperformance rates of 30 per cent and 37 per cent, respectively.
Expounding on the latter, SPIVA detailed that funds in the Australian equity mid and small-cap equities achieved an asset-weighted average return of 14.5 per cent compared to the S&P/ASX Mid-Small increase of 10.5 per cent.
“Their long-term underperformance was also comparatively better, with 72 per cent and 58 per cent of funds lagging over the 10- and 15-year periods, respectively,” the report said.
Meanwhile, active managers in the Australian Bonds category continued to excel, delivering an asset-weighted average return of 3.9 per cent, compared to a 2.9 per cent return for the S&P/ASX Australian Fixed Interest 0+ Index.
“However, more years of strong performance will be needed to change the longer-term statistics, as 82 per cent of funds lagged over the 15-year period,” SPIVA said.
Nonetheless, it said that bond managers may have benefited from more favourable market conditions for active management globally, continuing a trend identified in its mid-year global scorecard.
“In Australia, rates remained elevated at the front end of the curve and lower at the back end for a considerable period, which allowed for the harvesting of higher yields with less duration risk.”
