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Professional fund managers fail to outperform the index

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If you have ever wondered why your investments don't perform better than the index, take heart: most professional fund managers can't outperform the index either.

The majority of Australian active managed funds in the assets classes of Australian and international shares, bonds and Australian property failed to beat their benchmark over three- and five-year horizons, according to the latest S&P Dow Jones Indices Versus Active Funds (SPIVA) scorecard.

The only category to outperform the indices was Australian small cap shares.

fund managers

International equity and Australian bond funds had the highest portion of funds underperforming their benchmark.

SPIVA found the majority of funds (67%) in the international equity group underperformed the S&P Developed Ex-Australia Large Mid Cap, which recorded a return of 25.5% over the same period.

Over three years, 85% of global funds were under the index while over five years 90% underperformed.

Not a single bond fund outperformed the benchmark, the S&P/ASX Australian Fixed Interest Index, in the past one-year period. Over three and five years, 82% and 86% of funds respectively lagged the benchmark.

Among Australian equity managers, 53% lagged the S&P/ASX 200.

Over the five-year period, more than 70% were beaten by the benchmark.

While 55.2% of mid and small cap Australian equity funds lagged the S&P/ASX Mid-Small Index, they did much better over three and five years, with 65% and 71% respectively outperforming the benchmark.

Few real estate investment trusts beat the S&P/ASX 200 A-REIT benchmark, with 93%, 88% and 81% underperforming over one, three and five years respectively.

SPIVA looked at 599 Australian equity funds, including large, mid and small caps, A-REITs, international equities (277) and Australian bonds (68).

Data as of June 30, 2015 reveals:

  • Although large-cap equity funds performed better than 6 months before, more than half of them (52.60%) still failed to beat the S&P/ASX 200 Index in a 1-year period; 
  • For mid/small-cap funds, the performance was worse. 55.21% lagged the S&P/ASX Mid-Small Index in a 1-year period; 
  • Not a single Australian bond fund outperformed their benchmark in the past one year.

Australian General Equity Funds:

  • 52.60% underperformed the S&P/ASX 200 Index in 1-year period (compared with 61.44% as of December 31, 2014)
  • 54.61% underperformed the benchmark in 3-year period 
  • 70.96% underperformed the benchmark in 5-year period

Australian Equity Mid- and Small-Cap Funds:

  • 55.21% underperformed S&P/ASX Mid-Small Index in 1-year period 
  • 35.11% underperformed the benchmark in 3-year period 
  • 29.17% underperformed the benchmark in 5-year period

International Equity General:

  • 67.31% underperformed the S&P Developed Ex-Australia LargeMidCap Index in 1-year period (compared with 80.58% as of December 31, 2014) 
  • 85.15% underperformed the benchmark in 3-year period 
  • 89.55% underperformed the benchmark in 5-year period

Australian Bonds:

  • 100.00% underperformed S&P/ASX Australian Fixed Interest Index in 1-year period (compared with 94.12% as of December 31, 2014) 
  • 82.35% underperformed the benchmark in 3-year period 
  • 86.27% underperformed the benchmark in 5-year period

Australian Equity A-REIT:

  • 92.75% underperformed The S&P/ASX 200 A-REIT in 1-year period 
  • 88.16% underperformed the benchmark in 3-year period 
  • 81.01% underperformed the benchmark in 5-year period

Source: SPIVA

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Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.
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