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Actively managed German funds underperform

But large performance differentials in regional equity benchmarks offered opportunities for top-down pan-European managers

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Pete Carvill

A report from S&P Dow Jones Indices has found that nearly half (46%) of actively managed German funds underperformed the benchmark in the first six months of the year.

According to the firm, German equity funds had the highest underperformance rate in H1 2022 at 55%, with 46% of active funds underperforming the S&P Germany BMI. And, over a 10-year period, S&P said that over three quarters (76%) had underperformed the benchmark.

Germany was not alone, however. The report, SPIVA Europe Scorecard, says that the highest underperformance rate was seen in the UK large/mid-cap category, with 96% lagging the S&P United Kingdom LargeMidCap. Pan-European equity funds lay in the middle, with 84% underperforming in H1 2022. The relatively small Poland Equity category was the sole segment where most active funds outperformed in H1 2022—the figure for this stood at 32%.

S&P’s work also found that 82% of sterling-denominated, and 84% euro-denominated actively managed pan-European equity funds underperformed the S&P Europe 350 in H1 2022, respectively, while only 58% of Eurozone funds underperformed the S&P Eurozone BMI.

Meanwhile, euro-denominated global equity funds maintained a relatively high underperformance rate over longer time horizons. Over the 10-year period ending June 2022, 98% of funds underperformed the S&P Global 1200.

The report’s authors wrote: “Although H1 2022 underperformance rates were over 50% for most categories we report on, there would have been plenty of opportunities for active managers to add value either via a top-down or a bottom-up approach. From a bottom-up perspective, skilful stock pickers could have benefited from elevated dispersion. In H1 2022, average annualised monthly dispersion in the S&P Europe 350 was four percentage points above the 2021 average and six percentage points above the 2010-2019 average, while in the S&P United Kingdom BMI average annualized monthly dispersion in H1 2022 was 1% and 4% higher than the 2021 average and the 2010-2019 average, respectively.”

They added: “Meanwhile, large performance differentials in regional equity benchmarks offered opportunities for top-down pan-European managers as the triple headwinds of rising inflation, higher interest rates and surging commodity prices hit European economies particularly hard in the first half of 2022. Risk sentiment in the region deteriorated following the conflict in Ukraine, and the prospect of stagflation on the back of a worsening energy crunch weighed heavily on most of the region’s equity benchmarks: the S&P Europe 350 declined by 13%, while the S&P Germany BMI, the S&P France BMI and the S&P Italy BMI fell 22%, 15% and 20%, respectively, in turn (all in terms of total return in euros).”