Active versus passive fund manager debate in Europe furnished with data from S&P Dow Jones Indices, which offers European version of Spiva scorecard UK sterling-denominated actively managed funds have overwhelmingly outperformed their benchmarks during the past five years, while those denominated in euros are far in the opposite direction, according to the first Spiva (S&P Indices Versus Active Funds) scorecard for Europe. As equities rebounded in 2013, prompting a 21% gain in the S&P Global 1200 and 19% rise in the S&P UK index, the performance of active managers in European and International equity funds lagged. "In the UK, small caps massively outperformed larger companies in the past five years, especially over the past year," says Tim Edwards, director, index strategy at S&P Dow Jones Indices in London. Edwards speculates that the far superior performance of active managers versus the UK benchmarks may be due to the dominance that the largest five UK companies have in the major benchmark indexes, in which they represent between 20–25% of the portfolio. "Many active managers would not consider putting such a large stake into so few shares, and instead tilt away from large caps in their active management," says Edwards. Over the past year, S&P's United Kingdom BMI bettered active managers only 11% of the time; over three years the figure was 23%; and over five years 14%. In distinct contrast, S&P's Europe 350 equity benchmark outperformed active managers 61% during 2013, by 77% over the past three years, and 64% during the past five years (see table below). When measured by best versus worse performing active managers, the sterling-denominated UK managers showed a 10% difference between the first and third quartiles, twice the difference in performance recorded for the other 14 fund categories. "This supports, or at least does not contradict the difference in performance recorded by those actively managing UK equity funds." The inaugural Spiva Europe scorecard follows one for the US, based on the same methodology that was created in 2002. "We want people to use this to contribute to the active versus passive debate," says Edwards. "The report shows that active management does not do well in Europe, UK excepted." It also dispels the myth that active investing is better in emerging markets because it is capable of taking advantage of perceived mispricings attributed to heightened volatility and wide return dispersion. "The significant majority of [emerging markets] funds – regardless of currency denominated – underperformed the benchmark across all three time horizons used in this report," says Aye Soe, director, global research & design at S&P Dow Jones Indices in New York. "Unlike emerging markets equities, US equities had a blockbuster year in 2013, with record gains posted. However, over 60% of the fund invested in US equities failed to deliver better returns than the S&P 500."...
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