Over the past five years, that figure fell to just 15.32%. It is not a great picture for South African active managers and it gets worse when compared to other countries. India has comparative scores of 76% outperforming last year and 47% over five; Australia scores 39% and 22%; Japan 49% and 47%; and Brazil 50% and 46%. Mature markets share similar scores to South Africa, with 14% of US fund managers outperforming over one year and 20% over five; Europe saw 17% and 18%.
A simple interpretation of this might be that the US and South Africa have the world’s worst fund managers. Zack Bezuidenhoudt, head of S&P Dow Jones Indices (SPDJI) for South Africa and sub-Saharan Africa, says there are certainly a couple of things that have to be taken into account.
The first is the levels of dispersion – the way in which stocks perform relative to each other. A market where all stocks are moving either up or down would be one of low dispersion, but where certain stocks are climbing rapidly while others are falling would be one of high dispersion.
“In a market where everything is going up or where everything is going down, there is little chance of active managers being able to stock-pick,” Bezuidenhoudt says. “But if there are companies that react differently, that’s when active managers have the ability to outperform.”
“There is still a lot of [local] differentiation, with performance coming from certain companies, so you’re not just getting the same market performance across the board,” Bezuidenhoudt says.
This is certainly true of the JSE, where resource stocks have been under-performing, while industrial stocks and, to a lesser extent ,financials have headed upwards. Bezuidenhoudt suggests while this dispersion has been very apparent, many local managers have failed to capitalise because they have been lured in by the cheap-looking resource counters.
But in the past five years SA has seen a strong bull market. There is a long-held belief that active managers add the most value in market downturns, so in a market that has been heading ever higher it’s almost to be expected that the majority will under-perform the index.
However, looking more closely at the SPIVA figures in the US since 2000, there is little to suggest active managers have any advantage when markets head lower.
Active managers fared best in 2000 when the market slipped 9%, but over the next two years, when it got even weaker, the performance of active managers worsened.