Most active managers across investment categories including Australian stocks, fixed income and international equities underperformed their respective benchmarks over a five year horizon, according to new research.
Within Australian equities, 66.07 per cent of active managers were beaten by the S&P/ASX 200 Accumulation Index in the five years to June 2009, according to the Standard & Poor’s newly released Index Versus Active Funds (SPIVA) scorecard.
Over a three year period, that figure was 56.25 per cent, while over one year it was 28.68 per cent.
“Over the last year we’ve had the worst financial year results in terms of stock market returns since 1982/83, perhaps [the one year] figure has shown us that active funds might be able to provide a greater buffer or a cushion against a severe market downturn than a passive strategy or investment,” S&P Index Services director Simon Karaban said.
In Australian bonds, 97.22 per cent of active managers were outpaced by the UBS Composite Bond Index in the five years to June 2009.
Over a three year period, that figure was 94.12 per cent while over a one year horizon it was 87.88 per cent.
The fixed income data showed that active bond managers’ ability to beat the benchmark is very limited, Vanguard’s head of fixed interest Roger McIntosh said.
Within international equities, 76.15 per cent of active managers were beaten by the MSCI World ex-Australia Index in the five years to June 30 2009.
Over a three year period, that figure was 71.34 per cent and over one year it was 64.60 per cent.
In the Australian small caps category, 52.17 per cent of active managers were beaten by the S&P/ASX Small Ordinaries Index in the five years to June 2009.
However, the gauge only outperformed 21.54 per cent and 35 per cent of active funds over one and thee year periods, respectively.
“It is commonly believed that in the small cap space, active managers have a better chance of beating benchmarks because of the relative inefficiency of that market,” Standard & Poor’s (S&P) said.
The complete scorecard for Australia is available on S&P’s website. The scorecard will be updated every six months and is also available in Canada, Japan, the United States and Russia.
The SPIVA methodology is designed to provide an accurate and objective apples-to-apples comparison of funds’ performance versus their appropriate style indices, correcting for factors that have skewed results in previous index-versus-active analyses in the industry.
