S&P to Track Index, Active Sector Funds

April 29, 2003 (PLANSPONSOR.com) - A new Standard & Poor's product may help investors better keep track of the performance by active versus indexed domestic equity sector funds.

According to a S&P announcement, its Standard & Poor’s Index Versus Active Funds Scorecard (SPIVA) for Sectors features one-, three-, and five-year performance data for domestic equity sector funds benchmarked against the corresponding S&P sector indices. The Sector SPIVA report is available at    www2.standardandpoors.com/spf/pdf/index/042903spivareport.pdf  .

The report tracks the performance of US mutual funds classified as sector funds in the Standard & Poor’s mutual fund database from 1998. Sectors in which the number of funds with five-year histories was too small to allow meaningful comparisons were eliminated leaving eight sectors eligible for this study:

  • Energy
  • Financials
  • Health care
  • Information Technology
  • Materials
  • Telecommunications
  • Utilities
  • Real Estate.

For the first seven sectors, the Sector SPIVA reports compares actively managed sector funds to the S&P 500 Sector Indices as benchmarks. The S&P REIT Index was used as the benchmark for Real Estate sector funds.

Sector Performance

According to the Sector SPIVA report, five-year performance figures showed a majority of active managers outperforming indices in all but two sectors. However, three-year return figures show a majority of active funds beating indices in only two sectors. Perhaps most notable is the sustained outperformance by Materials sector funds that outpaced the S&P 500 Materials sector index over one, three, and five years. In the last five years, 67.6% of sector funds beat the index, while in the last three years, 85.3% outperformed, according to S&P.

The new study also found that technology sector funds more often went by the wayside because of the bear market than general equity funds. In the 12 months preceding April 2003, 11.3% of all active sector funds and 21.4% of Information Technology sector funds liquidated or merged. By contrast, only 6.8% of general equity funds liquidated or merged in the same period. Over the past three years, 13.1% of active sector funds did not survive.