The majority of U.K. and European actively managed equity funds denominated in pounds outperformed their benchmarks over 2013, while euro-denominated funds lagged.
For the first time, S&P Dow Jones Indices has analyzed the performance of actively managed European equity funds against their respective S&P benchmark over the one-, three- and five-year periods ended Dec. 31.
The firm's analysis found that 88.79% of pound-denominated funds investing in U.K. equities outperformed the benchmark, the S&P United Kingdom index, which gained 19.08% in 2013. Pound-denominated funds investing in European equities were a similar story, with 62.5% outperforming the S&P Europe 350 and its 20.97% return.
That outperformance extended to three- and five-year investment horizons, according to the S&P Indices Versus Active Funds Scorecard – Europe. For U.K. equities, 77.1% outperformed the three-year benchmark performance; for European equities, 73.77% outperformed over the same period. Over five years, 86.11% of U.K. actively managed funds outperformed the benchmark and 74.51% of European actively managed funds outperformed.
However, the same cannot be said for euro-denominated funds. For the year ended Dec. 31, 39.31% of European equities funds outperformed the S&P Europe 350; 23.25% outperformed over three years; and 36.17% over five years.
The research also found that money managers failed to take advantage of volatile emerging markets in 2013, with 70.52% of euro-denominated active managers and 60.8% of pound-denominated active managers underperforming the S&P Emerging Markets benchmark last year.
“We have been told that emerging markets are different, with opportunities to exploit anomalies” and generate performance because “they are more inefficient,” said Tim Edwards, director, index investment strategy, at S&P Dow Jones Indices, in a telephone interview. “I think it is interesting that our data suggests the opposite: it was hard to make money in emerging markets, but conversely it looks easy to outperform in the U.K.”
The firm already produces scorecards in the U.S., Canada and Australia, said Aye Soe, director, index research and design at S&P Dow Jones Indices, in the same interview. “When we looked at funds investing in emerging markets, the majority of them did poorly against the benchmark – that is the same in the U.S. We start to see consistent patterns,” she said.
Referring to data showing that 90.21% of pound-denominated active funds investing in U.K. large- and midcap equities outperformed for the one year, Mr. Edwards said it was “deeply unusual. That nine out of 10 managers in large- and midcap equities did better than the benchmark last year is extraordinary.”