The latest report on the performance of actively managed investment funds has shown a significant proportion continued to fall short of meeting their nominated benchmarks over the first half of the year.
The 2024 mid-year Standard and Poor’s Dow Jones Indices “SPIVA Australia Scorecard” found 48 per cent of active Australian general equity managers failed to meet their performance measures.
Additionally, 72 per cent of actively managed global equity general funds in Australia underperformed the Standard and Poor’s World Index, which posted a 14.9 per cent return, and collectively achieved an asset-weighted average return of 11.8 per cent.
Managers for real estate investment trust funds faced similar struggles, with over three-quarters failing to meet their benchmarks.
Australian small-cap funds performed relatively better, with only around a third underperforming their targets, making this one of the few areas where active managers found relative success.
Bond managers also delivered somewhat better results, with 33 per cent of active Australian bond funds lagging behind their performance measures, with managers benefiting from adjusting to interest rate conditions and credit opportunities, according to the report.
Vanguard Asia-Pacific chief investment officer Duncan Burns acknowledged while similar results have been observed in the United States, the data represents a “dismal result” for active fund managers in Australia and noted this has been reflected in a surge in domestic interest in passive funds.
“What the SPIVA scorecard really highlights is that most active fund managers are not talented enough or sufficiently different to outperform the returns from the share market, which explains the rapid acceleration of investor inflows into index-tracking funds,” Burns said.
“Put bluntly, Australian investors are increasingly voting with their feet because they’re realising that using an index fund to get the return from the share market is a much better alternative than using active managers that are highly likely to underperform the market.
“In Australia, the bulk of investor inflows into exchange-traded funds (ETF) are continuing to be directed into index funds, which now account for more than 91 per cent of total Australian exchange-traded fund industry assets.”
He added while interest in index funds is strong, significant room for growth remains given they represent a quarter of total investment assets in Australia, compared with 50 per cent in the US and 30 per cent to 40 per cent in Europe.
“There’s huge scope for Australian index funds and frankly there are a lot of Australian investors who could improve their retirement and investment outcomes by dialling up their index exposure through index ETFs,” he said.
