SPIVA® Latin America – Active Versus Passive in Latin America

The SPIVA Latin America Year-End 2017 Scorecard, which tracks the performance of active funds in Brazil, Chile, and Mexico relative to category benchmarks, was recently released. To ensure that the report is as relevant as possible to market participants, the S&P/BMV IRT, the total return version of the S&P/BMV IPC, is being introduced as the category benchmark for Mexico Equity Funds, starting with this year-end 2017 report. The S&P/BMV IPC is widely considered to be the de facto benchmark for Mexican equities, hence the change.

The recent rise in the markets didn’t lead to outperformance by active fund managers against category benchmarks, as the majority of managers underperformed across all categories measured. The percentage of funds outperformed by benchmarks in each category for the one-, three-, and five-year periods are shown in Exhibit 1.

The 2017 year-end report marks the fourth calendar year of publishing the SPIVA Latin America report. To track the historical performance of broad equity fund managers in Latin America, Exhibit 2 shows the average excess return relative to the respective country benchmark on a calendar year basis.

In the strongest bull market years—2016 and 2017—the average performance of the broad equity fund managers trailed the benchmarks in all three markets. The most significant underperformance was seen in Brazil, where the excess return of the manager average was -10.9% in 2016 and -4.6% in 2017. This enforced the notion that fund managers were unable to keep pace with the market in robust market periods.

In 2014 and 2015, which were bear or neutral markets for Latin American equities, fund managers fared relatively better. In Brazil, the average fund performance had positive excess returns in both years. For Chile and Mexico, the average fund performance slightly beat the respective benchmark return in one of the years (2014 for Chile, 2015 for Mexico), while lagging behind in the other year (2015 for Chile, 2014 for Mexico). While active managers did relatively better in periods of low or negative market return years, the magnitude of outperformance was significantly lower than the magnitude of underperformance observed in bull markets.

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