Singaporeans who want to invest typically have the following options: stocks, unit trusts, Exchange Traded Funds (ETFs), property, insurance products or cash. Someone who wants to invest in the stock markets, but do not want to get his or her hands dirty picking stocks can turn to unit trusts or ETFs. An idea gaining traction recently is the superiority of passive funds over active funds.
The main problem is that actively managed funds often fail to outperform their benchmarks, usually a stock market index. Worse still, many of them under-perform, especially after taking into account management fees.
The figures are grim. The often cited SPIVA reports show that as of 2016, the majority of active managers under-perform the S&P 500 US index. The conclusion is that active managers fail to outperform a passive index, over both short and long periods of time.
I wondered if this is true of Singapore focused equity funds as well. Investmentmoats took a look at this back in 2014 . I decided to try to replicate this in 2017 and see if the results have changed.
I used the data from Fundsupermart, for Singapore equity unit trusts, and compared it against computed returns for the FSSTI ETF (dividends reinvested, with returns for periods greater than a year annualised). The FSSTI ETF was chosen because this is one of the most acessible Singapore Equities ETF. Someone who wanted a passive alternative to an actively managed unit trust would probably use this as a Plan B. Note that the actively unit trusts have their own benchmarks, so just because it fails to beat the ETF does not mean it is underperforming its chosen benchmark.
For the 1 year comparison, the FSSTI ETF looks like it's in the middle of the pack.
For the 3 years comparison, the FSSTI is surpassed only by the Nikko Shenton Thrift Fund.
For the 5 years comparison, the FSSTI is surpassed only by the Nikko Shenton Thrift Fund (again) and the Nikko Singapore Dividend Fund.
For the 10 years comparison, the FSSTI is surpassed only by the Aberdeen Singapore Equity Fund.
It looks like actively managed unit trusts fail to throw up a clear and consistent winner, or winners, over the FSSTI ETF. However, it is important to note that we live in unprecedented times of Quantitative Easing, or QE, by the Central Banks. Active managers have blamed QE for reducing volatility and increased correlations amongst asset classes, thus blunting the ability of active managers to outperform by stock picking.
As QE is scaled back, the logical conclusion is to assume that good active managers will once again outperform. Only time will tell.
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