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Equity funds, Italian surprise in the challenge with the benchmarks

A report by S&P Dow Jones Indices analyzes the performance of actively managed funds compared to that of their respective benchmarks. In the Europe Equity category, only on a one-year time horizon does the majority of funds beat the index which instead does better over three, five and ten years. But the Italy Equity category reserves surprises.

Managers versus ETFs. Active management versus passive management. The never-ending challenge is even more relevant in times of market volatility where managers have more than ever the opportunity to show off their skills. And hit the index. A report just published by the S&P index giant Dow Jones Indices (McGraw Hill Financial group), which has published the Spiva index (S&P Indices Versus Active Funds) since 2002, takes stock of the state of the art on European equity funds and tries to analyze in which market segments one strategy could work better than the other. The first surprise is that Italy's equity funds do better than the rest of Europe. 

EQUITY EUROPE, IN THE LONG-TERM INDEX BEATS THE BUDGET

The Spiva Europe Scorecard index, the European focused index measures the performance of actively managed European equity funds denominated in Euros, British Pounds and other local currencies by comparing it to the performance of their respective indices over a 1, 3, 5 and 10 year horizon . And it has recently also included photography in the Italy Equity category The range of fund categories covered by the index has in fact recently been expanded to include domestic equity funds in Italy, the Netherlands, Poland, Spain, Switzerland and Northern Europe.

The first indication from the report is that the majority of actively managed Europe Equity funds (68%) outperformed the benchmark (S&P Europe 350) over a one-year time horizon, then 2015 (the analysis stops at the end of 2015). For S&P, however, this is not a satisfactory figure in light of the high volatility experienced by the markets in the last year, linked above all to the weak prospects for Chinese growth, the decline in energy prices and the divergent policies of the central banks. All situations that generally represent, explains S&P, the ideal conditions in which active managers can do better than the benchmark. The analysis then continues by expanding the reference time horizon. In this case the situation changes: it is the minority of funds that have done better than the index. In particular, in the last three years it is less than 40%, in five years less than 20% and in ten years less than 15%. However, the focus on Italy Equity funds holds a surprise. 

EQUITY ITALY BETTER THAN EUROPE
BUT ALSO THE USA AND CHINA

The first piece of information that emerges is that the annual figure for the Italy Equity funds is in line with that of Europe Equity (about 68% of active funds outperformed the index). Comparing it with the details of the other areas over a time horizon of one year, it turns out that the Italy Equity funds (see table) they do better than almost everyone else, with the exception of Spain where around 76% of the funds beat the index. Analyzing the percentages shown in the table, i.e. the percentage of funds that failed to beat the index, we see that, among funds denominated in euro, Spain records the lowest figure ever at 24,05%, followed by Italy (31,91%), then by Europe Equity (31,94%) and from the Netherlands (36,36%).

Not only. When attention shifts to the balance sheet of the last three and five years, the Italy Equity category funds not only defend themselves well against the index but are the best of all the others. 

Over three years, in fact, the majority of funds, 60%, still do better than the index (for Italy it is the S&P Italy Bmi). In fact, the table indicates that 40% of the funds were "outperformed" by the benchmark, the lowest percentage among those of the various countries. In this case, Spain recorded 67,07% (therefore the majority of funds did worse than the benchmark) and the Netherlands even 93,33%. 

To close the match on the substantial equality between active and passive management, we must instead move to five years when about 48% of Italy Equity funds outperformed the index against about 52% that were “outclassed”. But here too, as anticipated, we are dealing with the best data of all the cross-section by category of funds denominated in euro.

Finally, it is only after ten years that the balance of power between active and passive management is reversed: 72,5% of Italy Equity funds do worse than the reference benchmark. This means that only around 27,5% of actively managed funds managed to outperform passive management. But even here the data is the best in the comparison between categories.

Finally, there is no match if one looks at the values ​​of the Emerging Markets Equity and US Equity categories. Over the entire time horizon considered by S&P (1,3,5 and 10 years) both have always been largely "surpassed" by the benchmarks (respectively S&P/IFCI and S&P500). In the first case, Emerging Markets Equity, over a one-year time horizon, approximately 74% of the funds were beaten by the index, to then rise to 82% (three years), 89% (five years) and 97% (at ten years old). In the second case, US Equity, 83% of the funds were beaten by the benchmark after one year, to then rise steadily also in this case to 93% (three years), 97% (five years) and almost 99% (at ten years).

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