UK active equity funds underperforming benchmarks, finds S&P Dow Jones

Oct 24th, 2016 | By | Category: Equities

More than 85% of European-domiciled UK-focused actively managed equity funds underperformed their benchmark over the past year, nearly a four-fold increase on calendar year 2015 when 22.2% of funds underperformed. The dismal performance was the worst of any country performance on the European Mid-Year 2016 S&P Indices Versus Active Funds (SPIVA) Scorecard. The results support the ongoing argument that passive funds, such as ETFs, offer better value and performance than their actively managed counterparts.

Active equity funds underperform benchmarks in UK, finds S&P

The number of UK actively managed equity funds which underperformed their benchmarks has risen from 22.2% for the 2015 calendar year to over 85% for the year ended 30 June 2016.

The SPIVA scorecard, which is considered the de facto scorekeeper of the ongoing active versus passive debate, includes a breakdown of the performance of actively managed funds with specific country or regional focuses, against their relevant S&P benchmarks.

It specifically measures the performance of actively managed European-domiciled equity funds denominated in euro (EUR), British pound sterling (GBP), and other European local currencies against the performance of their respective benchmark indices over 1-, 3-, 5-, and 10-year investment horizons. The latest scorecard analyses fund performances up until 30 June 2016.

Average UK active fund performance over one year was -3.8%, compared to the S&P United Kingdom BMI return of +2.4%.  Underperformance of the benchmark continued over longer time periods, with 60.0% of funds underperforming over three years, 63.1% over five years and 77.1% over ten years.

The results were similar across many European country-specific actively managed equity funds. See diagram below.

Source: S&P Dow Jones.

Source: S&P Dow Jones.

Highlights from the report also show that European-focused actively managed equity funds performed poorly relative to their benchmark. Compared to the S&P Europe 350, 57.4% of euro-denominated actively managed European equity funds failed to beat the benchmark, compared to 31.9% for the 2015 calendar year. Over three years, underperformance against the benchmark increased to 72.6%, to 79.9% over five years, and to 87.4% over ten years.

Performances were no better for globally-focused funds. In the past year, 87.9% of actively managed global equity funds underperformed the S&P Global 1200, and 64.4% of emerging market equity funds underperformed the S&P/IFCI. These figures rose to a staggering 98.3% and 96.7% respectively for the 10-year period.

Over the ten year period, 99.1% of US-focused actively managed equity funds underperformed the S&P 500.

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