The SPIVA® Australia Scorecard reports on the performance of actively managed Australian mutual funds against their respective benchmark indices over various investment horizons. In the year-end 2017 report, we extended the analysis to 15 years.
In 2017, the majority of Australian funds in most categories underperformed their respective benchmarks, apart from the Australian A-REIT category. There were 74%, 69%, and 59% of funds in the Australian Equity Mid- and Small-Cap, Australian Bonds, and Australian Equity General categories, respectively, that underperformed their respective benchmarks. Over the 10- and 15-year periods ending Dec. 31, 2017, a minority of funds in most categories delivered higher returns than their respective benchmarks. Less than 15% of International Equity General and Australian Bonds funds and less than 30% of Australian Equity General and Australian Equity A-REIT funds managed to outperform their respective benchmarks on an absolute basis.
Apart from comparing active funds against their respective benchmarks to evaluate their performance, persistence is an additional test that reveals fund managers’ skills in different market environments. Results from the latest Persistence of Australian Active Funds report show that a minority of high-performing funds in Australia persisted in outperforming their respective benchmarks or consistently stayed in their respective top quartiles for three consecutive years, and even fewer maintained these traits consistently for five consecutive years.
Out of the 177 top-quartile Australian active funds in 2013, only two of them (1.1%) remained in the same quartile for the next four consecutive years (2014-2017). Among the 382 Australian active funds that beat their respective benchmark in 2013, only four of them (1.0%) managed to continue their outperformance over the following four consecutive years (2014-2017).
Overall, identifying outperforming active funds is challenging, because the majority of funds delivered lower returns than their respective benchmarks in most categories, as shown in the SPIVA Australia Scorecard. Considered together with the observed weak performance persistence for top-performing funds in Australia across three- and five-year periods, finding funds that beat the benchmark for several consecutive years may appear an inconceivable mission.