80% of UK funds outperformed in 2020, but 10-year success rate lower

The latest SPIVA data shows that in 2020, four in five actively managed UK equity funds outperformed.

Four out of every five actively managed UK equity funds outperformed in 2020, according to the latest S&P Indices Versus Active Funds (SPIVA) Europe Scorecard.

Published biannually, the latest data shows that four in five actively managed UK equity funds outperformed the S&P United Kingdom index in 2020. This suggests that, contrary to a lot of scepticism, UK equity fund managers were able to position themselves relatively well during last year’s volatility.

• Active versus passive: a brief introduction
• Tom Bailey Column: Help! I believe in passive but buy active funds
• Smithson more than doubled benchmark return in 2020

The S&P United Kingdom index is S&P Global Indices’ answer to the more popular FTSE 100 index. The S&P index is composed of 87 companies, with its constituents fairly similar to the FTSE.

Meanwhile, as you would expect, UK Small Cap funds were even more likely to outperform – just 14.8% underperformed the S&P United Kingdom SmallCap index in 2020. Small-cap stocks are less covered and researched, meaning there is supposedly more opportunity for active fund managers to take advantage of “mispricing”. However, UK Large/Mid Cap funds also did well, with 19.4% underperforming in 2020.

Over the longer term, the results for UK funds look slightly less impressive. On a 10-year basis, 65% of UK active equity funds have underperformed the S&P benchmark. The underperformance rate for both UK Small Cap and UK Large/Mid Cap rises to above 60% on a 10-year basis.

• Ian Cowie: shares that yield an income pay investors to be patient

• Terry Smith: three shares I bought and why

However, it is important to note that this was still much better than other sterling-denominated active funds over the same period. On a 10-year basis, 93% of Global Equity active funds have underperformed the S&P Global 1200 index. A similar number of US Equity funds underperformed the S&P 500. UK fund managers were also more likely to outperform on a 10-year basis than both emerging market equity funds (82% underperformed) and Europe ex-UK equity funds (75% underperformed).

In terms of 2020, emerging market equity funds performed the worst, with 53.7% underperforming the S&P/IFCI Composite. That was slightly more than even US Equity funds, of which 53.3% underperformed the S&P 500. This challenges the commonly held idea that emerging markets are inefficient and stocks are ‘mispriced’, making it easier to beat the index.