Active funds managers aren’t beating benchmarks: S&P

Active fund managers are failing to outperform market benchmarks, according to S&P Dow Jones Indices.

ASX computer screens at Exchange Centre on Bridge Street in Sydney.

The debate around active versus passive investing is poised to heat up as figures from S&P Dow Jones Indices show active fund managers consistently fail to outperform the market.

As at June 2016, the majority of Australian funds in large caps, real estate investment trusts, international equities and bonds were outperformed by their respective benchmarks over one-, three- and five-year periods.

The only outperformance was seen in the more volatile mid- and small-caps category — and this was exclusively over the longest time frame in the study.

“There is no consistent trend in the yearly active versus index figures, but we have consistently observed that the majority of Australian active funds in most categories fail to beat the comparable benchmark indices over three- and five-year horizons,” the report noted.

The SPIVA Australia Scorecard incorporates 608 Australian equity funds (including large, mid and small caps as well as A-REIT), 294 international equity funds and 66 Australian bond funds.

It found 59.7 per cent of large cap funds failed to beat the ASX 200 index in the most recent financial year, with this number rising to 69.2 per cent over a five-year period.

The showing from fund managers in the mid- and small-caps space was markedly better, although the one-year showing of 61.3 per cent underperforming as against the relevant benchmark of the S&P/ASX Mid-Small Index was a shift away from trend.

Over a five-year period, more outshone the index than undershot, with just 38 per cent underperforming.

The grimmest showings came from active fund managers in the international equity, real estate investment trusts and bonds spheres, where around nine in 10 consistently failed to outstrip the performance of relevant benchmarks to the chagrin of investors.

A total of 80.7 per cent of international equity fund managers underperformed over the last fiscal year, while a striking 91.9 per cent undershot through the last five years.

It was a similar story for Australian bonds, with around 89 per cent of fund managers falling short of benchmarks over both the one- and five-year periods, while 87.5 per cent of funds in Australian equity A-REIT floundered last year and 92.4 per cent over a five-year period as against the relevant S&P/ASX200 A-REIT benchmark.