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Global equities led active fund underperformance in 2023: S&P

  •  
By Jessica Penny
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3 minute read

Both international and Australian equities struggled to beat their respective benchmarks last year, according to S&P’s latest analysis.

S&P Dow Jones Indices has released the latest iteration of its SPIVA Australia Scorecard report, which measures the performance of Australian actively managed funds against their respective benchmarks.

Amid the “best of times and the worst of times” for actively managed funds, according to S&P, international general equity funds struggled the most throughout 2023.

Namely, the majority (81 per cent) of international general equity funds failed to outperform their benchmark – the S&P Developed Ex-Australia LargeMidCap – which had a total return of 24.1 per cent. Over its 10-year and 15-year horizon, around 94 per cent of funds underperformed.

The story was similar in the large-cap Australian equity general space, with more than three-quarters (77 per cent) of active managers failing to keep up with the S&P/ASX 200 – its second-worst performing rate since 2009.

The long-term position painted an even grimmer picture, with 85 per cent of funds falling short over 15 years.

Meanwhile, a firm majority (64 per cent) of Australian equity mid and small-cap funds managed to beat their respective benchmark – the S&P/ASX Mid-Small index – over 2023, which grew 7.8 per cent.

But underperformance levels across small and mid-cap funds also increased over the longer-term (albeit less pronounced than large-cap funds), rising to 77 per cent over a 10-year time horizon.

S&P noted that sectors played an important role in driving performance for Australian equities, with noticeable rotations from the prior year.

Information technology and consumer discretionary were the best-performing sectors, with gains of 31 per cent and 22 per cent in 2023, respectively, contrasting losses of 34 per cent and 20 per cent in 2022.

Meanwhile, both energy and utilities, which had strong gains of 49 per cent and 30 per cent in 2022, respectively, didn’t surpass 4 per cent in 2023.

Bonds outshine active counterparts

Active bond managers had a comparatively “exceptional year”, S&P Dow Jones Indices noted in its latest report.

Namely, Australian bond funds posted their lowest one-year underperformance rate since the 2015 launch of the S&P/ASX Australian Fixed Interest 0+ Index, with just 26 per cent of funds underperforming their benchmark.

The longer-term position was also better relative to other categories, with 56 per cent and 46 per cent underperforming over the three-year and five-year periods, respectively.

Noting that credit spreads narrowed over the year, S&P pointed out that over the past nine years, the annual underperformance rate was generally lower in years with narrowing credit spreads.

REITS bounce back in second half of the year

In its report covering the first half of the 2023 calendar year, S&P revealed that 88 per cent of Australian Equity A-REIT funds underperformed the S&P/ASX 200 A-REIT index – the highest rate of underperformance among reported categories.

Since then, active managers in the category improved their underperformance rate to 69 per cent over the full year.

Over the 15-year period, however, 80 per cent of active funds underperformed.