Growth managers paved the way for active fund management in 2003, with 55.3% of large cap growth funds, 68.3% of mid-cap growth funds and 64.8% of small-cap growth funds outperforming the S&P/BARRA Growth Index. Meanwhile, the S&P 500 beat 64.6% of large-cap funds while the S&P MidCap 400 outpaced 56.4% of mid-cap funds. Small-cap active funds turned in an impressive year, with 61.2% beating the S&P SmallCap 600 Index.
"Performance in 2003 was dominated by returns in growth segments such as Technology (+47%) and Consumer Discretionary (+37%)," noted Rosanne Pane, mutual fund strategist at Standard & Poor's. "Active fund managers who were overweight in these sectors outperformed their benchmarks."
Over the last five years, the S&P 500 has outperformed 53.2% of large-cap funds, the S&P MidCap 400 has outperformed 81.7% of mid-cap funds, and the S&P SmallCap 600 has outperformed 69.8% of small-cap funds. Similarly, over the past three years, the S&P 500 has outperformed 63.7% of large-cap funds, the S&P MidCap 400 has outperformed 73.3% of mid-cap funds, and the S&P SmallCap 600 has outperformed 68.6% of small-cap funds.
"Standard & Poor's continues to see active funds underperforming indices over longer time horizons such as three and five years," said Srikant Dash, index strategist at Standard & Poor's. "This pattern is consistent across large-, mid-, and small-cap categories, and has held across the diverse market environments of the past few years."
Standard & Poor's SPIVA report also showed that small-cap funds with smaller asset sizes have done better than funds with larger assets under management. This is shown by the equal-weighted average returns of small-cap funds outperforming the asset-weighted average returns over the last one-, three- and five-year horizons. This holds true across the small-cap value, growth and blend categories. "In the small-cap sector, liquidity is an issue for active managers," adds Pane. "Funds with smaller asset sizes can be more efficient in trading and managing their investment process."
Survivorship
A key attribute of the SPIVA methodology is its correction for survivorship bias, which skews results as funds liquidate or merge. 7.4% of general equity funds liquidated or merged in 2003. The corresponding figures for the last three and five years are 16.7% and 19.5% respectively.
The complete year-end 2003 SPIVA Scorecard is available to the public at www.standardandpoors.com/spiva.
About SPIVA
The SPIVA scorecard reveals quarterly performance data for domestic equity mutual funds benchmarked against nine corresponding S&P indices and eight sector indices, including the S&P 500 for large-cap funds, the S&P MidCap 400 for mid-cap, the S&P SmallCap 600 for small-cap, and the S&P SuperComposite 1500 for broad market comparisons. The S&P/BARRA growth and value indices are used for style categories. S&P 500 sector indexes and the S&P REIT index are used for sector categories. The latest quarterly report tracks performance of 2479 actively managed funds.
The SPIVA methodology is designed to provide an accurate and objective apples-to-apples comparison of funds' performance versus their appropriate style indices, correcting for factors that have skewed results in previous index-versus-active analyses in the industry. SPIVA scorecards show both asset-weighted and equal-weighted averages, include survivorship bias correction to account for funds that may have merged or been liquidated during the period under study, and show style consistency for each style group across different time horizons.
The SPIVA Scorecards were developed by a cooperative effort between Standard & Poor's Quantitative Services, Advisor Services and Index Services.
About Standard & Poor's
Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research, data and valuations. With 5000 employees located in 20 countries, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit www.standardandpoors.com.
