Over the 12-month period ending June, 71% of large-cap and 83% of mid- and small-cap domestic equity funds in Japan outperformed their respective benchmarks, with average returns of 11.7% and 21.3% respectively, according to the firm’s Spiva Japan scorecard.
By comparison, during the same period a majority of foreign equity funds sold in the country underperformed their respective benchmarks, with 99% of emerging market equity funds underperforming the S&P Emerging BMI Index.
Looking at a 10-year period, between 50-60% domestic large and small cap Japan equity funds underperformed their benchmarks.
However, far worse 10-year underperformance came from global, international and emerging market equity funds for sale in Japan: 90% of them underperformed their benchmarks, according to the study.
The report noted that among various foreign fund categories, US and emerging equity funds had higher spreads in the five- and 10-year periods, indicating that smaller funds in these two categories tended to perform better than larger funds.
“With the Japanese yen’s fluctuation, managing currency positions is an added challenge facing foreign equity portfolio managers, apart from asset allocation and stock picking,” Priscilla Luk, managing director and head of global index research and design for Asia-Pacific at S&P Dow Jones Indices, said in a statement.
“For Japanese domestic funds, while large-cap funds outperformed in various periods in the past 10 years, the mid/small cap funds have delivered more pronounced outperformance as mid/small caps are relatively under-researched and less vulnerable to macro events such as trade tensions.”
Domestic equity funds also had a higher survivorship rate than foreign equity funds across the different measured periods, the report said.
