SPIVA Europe Mid-Year 2017 Scorecard: Active Versus Passive – Consistency Is Key

By Andrew Innes

It’s that time of the year, and the highly anticipated SPIVA Europe Mid-Year 2017 Scorecard is out. European active fund managers are no doubt apprehensively looking to see how their industry is competing with the performance of their respective S&P DJI benchmark indices.

At first glance, active proponents may breathe a sigh of relief for doing better than usual over the past year. After all, when comparing the 50.9% of actively managed European equity funds that underperformed their passive benchmark from mid-2016 to mid-2017, they may argue it is considerably better than the equivalent figure of 80.4% reported in the SPIVA Europe Year-End 2016 Scorecard. Active managers in several countries, most notably the UK, France, Denmark, and Switzerland, may go as far as celebrating that more than half of funds investing in equities in the region outperformed over the past year.

The reality is that active funds investing in pan-European equities collectively failed to beat the benchmark over the past year. The S&P Europe 350 showed an impressive one-year return of 18.6%, while euro-denominated active funds investing in pan-European equities underperformed, with an average asset-weighted performance of 17.6%. Even more interesting is that the annual return of the average stock within the benchmark was 23.3%, represented by the S&P Europe 350 Equal Weight Index. This means the mean return of a large group of randomly weighted portfolios would have likely outperformed the S&P Europe 350 by a significant margin.

But to avoid any shortsightedness in the analysis of the latest SPIVA Europe Scorecard, let’s step back to observe the consistency in the results from active equity fund managers. So, instead of just looking at the number of funds in Europe that underperformed over the past year, we took a look over a longer time frame. In doing so, looking over the past 10 years, we found the percentage of actively managed funds across each category in the SPIVA Europe Scorecard that underperformed the benchmark ranged from 72% to 98%. Therefore, finding funds that will outperform their benchmarks over the long term appears to be the real skill.

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