UK funds gain short-term edge, but not over 10 years

Tom Bailey reports on the latest active versus passive statistics.

More than half of UK fund managers outperformed the wider market in the first half of 2021, according to the latest S&P Indices Versus Active Funds (SPIVA) Europe Scorecard.

The mid-year results showed that 45% of UK active equity funds underperformed the S&P United Kingdom BMI Index in the first six months of the year. Over a one-year period, results were even better, with just 23% underperforming the index.

However, as expected, over a longer time period more fund managers underperformed. Over a 10-year period, 62% of fund managers failed to outperform the benchmark.

However, it was notably better than for fund managers investing in other markets.

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For example, over a 10-year period, 85% of European equity fund managers underperformed the S&P Europe 350. When it comes to US-focused managers, that rose to 95% (when compared to the S&P 500) and for global equity fund managers it was 98% (when compared to S&P Global 1200). Emerging market fund managers also struggled over a 10-year period, with just 15% outperforming.

During the first half of the year, non-UK funds also experienced greater underperformance, although Italy was an exception to the rule with just 20% of funds focused on Italian shares being beaten by the S&P Italy BMI.

Elsewhere, more than 70% of Europe equity funds were beaten by the S&P 350 index. A similar percentage of global equity funds and emerging markets funds were also beaten by their respective benchmarks. US equity funds fared slightly better, albeit with around 60% still beaten by the S&P 500 index.

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Returning to UK funds, recent performance was correlated with the size of companies the fund invested in. Just 16.1% of UK small-cap equity funds underperformed the benchmark in the first half of 2021, while 46.1% of UK large-/mid-cap equity funds underperformed.  

However, as S&P notes: “This performance gap converges in the long run, with more than 60% of both UK small-cap equity and UK large-/mid-cap equity funds failing to outperform their respective benchmarks over the 10-year period.”