Spiva report shows active upswing

Active equity funds in the UK have continued to outperform their benchmarks, according to the latest research from S&P Dow Jones Indices.

In its latest half-yearly S&P indices versus active funds (Spiva) report, the firm revealed the increase in market volatility had led to a pick-up in active management outperformance in the first six months of this year.

On an asset-weighted basis, where more emphasis is given to funds with more assets, the average return from an active fund denominated in sterling was less than its benchmark in only one out of the eight equity categories in the 12 months to the end of June.

Article continues after advert

The results were similar over longer periods, with the average return from active funds outperforming in seven out of eight regions for three-year performance and in five out of eight regions for five-year performance.

In the firm’s previous report, which looked at performance to the end of 2013, active funds had only outperformed in four of the eight categories in the previous 12 months. This indicates there has been a pick-up in active management relative performance in the first six months of this year.

S&P breaks the funds down into eight equity regions: Europe, Europe ex UK, UK, UK large/mid cap, UK small cap, global, emerging markets and US.

In the 12 months to the end of June, only funds in the Europe ex UK sector failed to beat their benchmarks.

The biggest outperformance came from the global equity sector, where the average fund returned 18.3 per cent compared to the S&P Global 1200 index return of 10.4 per cent.

The Spiva report, which has only recently been established in Europe but has been running in the US since 2002, has sought to further legitimise the data by correcting for survivorship bias, in which funds that are liquidated or merged during the period of study are not counted in the final results, which is a common complaint about such active and passive performance comparisons.

S&P also presents its figures on both an asset-weighted and equal-weighted basis, whereas the more common method of displaying performance figures is done solely by giving each fund equal weighting.

However, even on an equal-weighted basis, the performance of sterling-denominated active funds was just as strong, with only the average return from the Europe ex UK sector underperforming the benchmark in the year to the end of June.

But within the global and emerging markets sectors, the average returns look like they have been skewed by some very highly performing funds because in both sectors the majority of funds underperformed the benchmark in that period.

The report found the benchmark outperformed 65.8 per cent of global funds and 56.9 per cent of emerging markets funds, with that benchmark outperformance consistent across one-, three- and five-year periods.

Meanwhile, a big winner over the period under scrutiny was the UK small-cap sector, in which only 26.3 per cent of funds were beaten by the benchmark S&P United Kingdom SmallCap index.