The majority of South African equity funds invested in both the domestic and international markets lagged their respective benchmarks over a one-year period, according to the S&P Dow Jones Indices’ SPIVA South Africa Scorecard.

Over a one-year period, 83.69% of South Africa equity fund managers underperformed the S&P South Africa DSW, whereas that number increased over the five year period to approximately 84.68%.

David Guarino, Head of Communications at S&P Dow Jones Indices, said that the numbers are even more telling when looking at the performance of global equity funds.

“Over a three-year period, 93% of global equity fund managers underperformed the S&P Global 1200. That number rose to 96% over the five-year period,” he said.

The report measures the performance of actively managed, South African equity and fixed income funds denominated in South African rands (ZAR) against their respective benchmark indices over one-, three-, and five-year investment horizons.

In South Africa, on the fixed income side, the results were mixed.

“While active managers beat their respective benchmark in the short-term bond category, this outperformance was not seen in the longer-maturity diversified/aggregate bond category,” said Guarino.

S&P Dow Jones Indices has been the de facto scorekeeper of the ongoing active versus passive debate since the first publication of the SPIVA US Scorecard in 2002.

Guarino said that the results of the inaugural SPIVA Scorecard for South Africa are very much in line with the results from other SPIVA scorecards throughout the world.

“Over long periods of time, active fund managers have a very hard time outperforming their relative benchmark. Our research has shown that over long periods of time, active fund managers have a very difficult time outperforming benchmarks,” he said.

“We see this with the SPIVA scorecards that we run in the US, Canada, India, Europe, Japan, and now Africa. There are certainly some very good fund managers out there; no question. However, the results of our studies clearly show that passive investing works over the long-term,” Guarino told Africa Global Funds.

The analysis also reveals that the size of the fund (assets under management) appears to matter.
Results highlight that asset-weighted returns across the three time horizons examined were generally higher than equal-weighted returns.

In addition, equity funds also seem to disappear at a meaningful rate -over the five-year period, approximately 20-30% of funds were either liquidated or merged.

The SPIVA South Africa Scorecard covers around 1400 domestic and international funds that are denominated in South African rands.