The majority of Australian managed funds underperformed their benchmarks last year, according to the latest S&P Down Jones Indices versus Active Funds Scorecard (SPIVA).
And only a small minority of funds that outperformed their benchmarks in any given year were able to maintain that performance long term.
The scorecard is based on the performance of 786 Australian equity funds, 378 international equity funds and 109 Australian bond funds.
The one segment of the market that went against the trend was listed property trusts (AREITs).
Australian large cap equity funds. Fifty-nine per cent of large cap equity funds underperformed the S&P/ASX 200 Index, which rose 11.8 per cent in 2017. Over three years 67 per cent of funds underperformed and over five years 63 per cent underperformed the index.
Australian mid and small-cap equity funds. Mid and small cap funds produced an average return of 17.9 per cent last year, compared with a 21.2 per cent increase in the S&P/ASX Mid-Small index. Over three years75 per cent of funds underperformed the index.
International equity funds. International funds produced an average return of 15.4 per cent last year, compared with a 14.5 per cent increase in the S&P Developed Ex-Australia LargeMidCap Index. However, 53 per cent of funds underperformed. Over three and five years more than 80 per cent of funds underperformed.
Australian bond funds. Bond funds rose 3.2 per cent last year, while the S&P/ASX Australian Fixed Interest 0+ Index rose 3.6 per cent. Over longer periods more than 80 per cent of funds underperformed.
Australian AREIT funds. AREIT funds were up 6.8 per cent last year, while the S&P/ASX 200 AREIT was up 5.7 per cent. Forty-four per cent of funds underperformed in 2017. Over three years 66 per cent of funds underperformed and over five years 84 per cent underperformed.
Looking at persistence, S&P found that a minority of outperforming funds continued to beat their benchmarks in subsequent years, with only 1 per cent of funds able to beat their benchmarks over any five consecutive year period. Of the 382 active funds that beat their benchmark in 2013, four of them managed to maintain that outperformance each year until 2017.
Few funds were able to maintain a top quartile ranking over a number of years. Only 1.1 per cent of outperforming funds in 2013 maintained a top-quartile rank over the next four years.
Of the 77 large cap equity funds in the top quartile in 2013, 33.3 per cent were still there in 2014, 17.3 per cent were still there in 2015 and none in 2016.
Bond funds have the best persistence, with 8.3 per cent of those in the top quartile in 2013 still there in 2017.