Adding to the debate on the merits of passive and active investing styles, FSA looked at 10-year performance data of mutual funds registered for sale in Hong Kong in a few selected sectors and compared it with what we deemed the most commonly used index for the category.
The sectors were: US equity, Europe equity, China equity, Japan equity, Asia Pacific ex-Japan equity, Asian bonds and high-yield bonds. We plotted the performance of all funds with 10-year track record listed in the FE database, together with the median for the category and the performance of the index.
10-year cumulative returns of mutual funds and sector indices
Data: FE, 31 July 2017, returns in US dollars
On the chart, each red dot represents the 10-year cumulative return of one fund in the sector. The square represents the median of the returns, and the purple diamond marks the 10-year return of the index.
Only in the Europe equity sector was the median 10-year performance in line with the performance of the MSCI AC Europe index, with equal numbers of funds doing better and worse than the index.
In all other equity sectors, most managers underperformed the index. The biggest gap was in the US equity sector, where the median return was 75% while the S&P 500 delivered 110% during the same period.
Applying the same method to fixed income funds must come with more caveats, especially since fund managers benchmark their performance to a range of bond indices and many don’t follow an index.
We observed that Asian bond funds have, nevertheless managed a performance close to the JPM GBI-EM Global Asia government bond index, while high-yield bond funds fell far short of the Bloomberg Barclays Global High Yield index, with no funds getting even close to delivering the same performance as the index.
The indices used:
- High yield bonds: Bloomberg Barclays Global High Yield
- Asian bonds: JPM GBI-EM Global Asia
- US equity: S&P 500
- Apac ex Japan equity: MSCI AC Asia ex Japan
- China equity: MSCI China
- Japan equity: MSCI Japan
- Europe equity: MSCI AC Europe
