Europe’s SPIVA Results Are Nothing New

Larry Swedroe breaks down Europe’s SPIVA results to show active strategies aren’t likely to outperform.

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Larry Swedroe, Director of Research, The BAM Alliance

Earlier this week, I provided some highlights of from the S&P Dow Jones Indices Versus Active (SPIVA) 2016 U.S. Scorecard. Today we’ll look at the SPIVA Europe Scorecard, which compares the performance of actively managed equity funds to their appropriate index benchmarks.

The year-end 2016 Scorecard provides us with 10-year data. While not surprising to those familiar with the U.S. Scorecard, the results should be depressing for investors who believe that active strategies are likely to outperform.

Active Underperformance

The data below show the percentage of actively managed funds that were outperformed by their respective benchmarks during the most recent 10-year period. The results are based on euro-denominated returns.

Eighty-eight percent of eurozone actively managed equity funds underperformed the S&P Europe 350 Index (350 leading blue chip companies drawn from 16 developed European markets). On an equal-weighted basis, active funds underperformed by 1.23 percentage points. On an asset-weighted basis, active funds underperformed by 1.17 percentage points.
Ninety percent of eurozone actively managed equity funds underperformed the S&P Eurozone BMI (Broad Market Index), a comprehensive benchmark that includes large-, mid- and small-cap stocks from developed and emerging eurozone countries. On an equal-weighted basis, active funds underperformed by 1.15 percentage points. On an asset-weighted basis, active funds underperformed by 1.34 percentage points.
Seventy-six percent of Nordic actively managed equity funds underperformed the S&P Nordic BMI (representing the Swedish, Danish, Norwegian and Finnish stock markets). On an equal-weighted basis, active funds underperformed by 0.12 percentage points. On an asset-weighted basis, active funds underperformed by 0.6 percentage points.
Ninety-eight percent of actively managed global equity funds underperformed the S&P Global 1200 Index. On an equal-weighted basis, active funds underperformed by 3.56 percentage points. On an asset-weighted basis, active funds underperformed by 3.17 percentage points.

Ninety-eight percent of actively managed U.S. equity funds underperformed the S&P 500 Index. On an equal-weighted basis, active funds underperformed by 2.19 percentage points. On an asset-weighted basis, active funds underperformed by 3.00 percentage points.
In France, Germany, Italy, Spain and the Netherlands, 84%, 82%, 76%, 82% and 97%, respectively, of actively managed funds were outperformed by their associated S&P BMI country index. On an equal-weighted basis, active funds underperformed in France, Germany and the Netherlands by 0.56 percentage points, 0.95 percentage points and 3.90 percentage points, respectively. However, in Italy, where returns were negative, active managers outperformed, on an equal-weighted basis, by 0.89 percentage points. They also slightly outperformed in Spain, where returns were virtually flat, by 0.02 percentage points. On an asset-weighted basis, active funds underperformed in France, Germany and the Netherlands by 1.09 percentage points, 0.35 percentage points and 3.90 percentage points, respectively. However, they outperformed in Italy by 0.79 percentage points and in Spain by 0.34 percentage points.
One hundred percent of actively managed emerging market funds underperformed the S&P/IFCI Emerging Markets Index. On an equal-weighted basis, active funds underperformed by 4.22 percentage points. On an asset-weighted basis, active funds underperformed by 3.71 percentage points.

Damning Evidence

Overall, the evidence demonstrates how difficult it is for actively managed mutual funds to outperform over longer time frames. The evidence is especially damning when it comes to the supposedly inefficient asset class of emerging markets, where 100% of actively managed funds underperformed their benchmark, and where the underperformance was 4.22 percentage points on an equal-weighted basis and 3.71 percentage points on an asset-weighted basis.

As you review the data, keep in mind that the results presented here are all based on pretax returns. This is important because the evidence shows that taxes—not a fund’s expense ratio or trading costs—are often the greatest cost of active management.

The bottom line is that the case against active management as the winning strategy is just as strong in international markets as it is in the United States. It’s a game that’s possible to win, but the odds make it so unlikely that it’s not prudent to try. It’s why Charles Ellis called it “the loser’s game.”

This commentary originally appeared April 19 on ETF.com

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