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Q3 Performance Roundup: Active strategies continue rebound, equity growth outperforms value

29 October 2020
By Peter Laurelli, CFA | eVestment Global Head of Research

Active investment managers across a variety of asset classes and regional exposures followed their historic Q2 returns with continued gains in Q3 2020. Returns were not consistently positive throughout the quarter as losses were the norm in September. The road ahead is filled with uncertainty around US elections and the global response to COVID-19 in the coming months.

The data below pulls some high points from eVestment’s monthly and quarterly institutional investment performance data and highlights historic quarterly returns, particularly among Equity strategies, globally.

Highlights include:

  • The average of all active traditional equity strategies was +7.75% in Q3 2020 (compared to +21.09% in Q2) and -0.55% YTD and the average of all active traditional non-cash fixed income strategies was +2.88% in Q3 and +3.94% YTD.
  • The biggest story of the quarter for equity strategies was the continued outperformance of growth over value strategies, which was almost universal across global exposures. Active equity performance vs. benchmarks shows a different picture, however, as US Large Cap and All Cap Growth managers have been finding it difficult to keep up with surging benchmarks (only 21% beat the universe’s preferred benchmark in Q3 and 32% YTD).
  • Within fixed income, European markets generally produced better results than within the US (in USD terms) during Q3 and returns were best within convertibles, then mostly followed the credit quality spectrum with high yield strategies performing best.
  • Emerging market equities produced some of the best performance in Q3 2020, notably, from India (+17.61%), Korea (+17.50%) and emerging Asian markets, but it was the eVestment Nordic Equity universe with the highest average returns in Q3 (+17,74%), which was led by small cap strategies in the region.
  • Year-to-date through Q3, China A-Shares (+28.39%) and Offshore China Equity (+24.59%) universes are producing the highest average returns, but US Growth Equity universes are not far behind.

Universe Average Returns

All Active Equity Strategies

RegionQ1 2020Q2 2020Q3 2020YTD 2020Currency% Reporting
All Equity Strategies-23.97%21.09%7.75%-0.55%USD88%
All US Equity-24.56%23.25%7.20%0.30%USD93%
All Global Equity-21.96%19.86%7.80%1.19%USD90%
All Emerging Mkts Equity-26.63%21.08%8.89%-2.71%USD91%
All Europe Equity-23.61%17.36%3.28%-7.23%EUR83%
All Asia Pacific Equity-18.51%19.75%11.34%8.69%USD76%
All EAFE Equity-24.16%17.68%7.18%-4.24%USD95%
All ACWI ex-US Equity-23.40%19.85%8.61%-0.01%USD96%
All Japan Equity-19.06%14.78%7.16%-0.17%JPY76%
All Canadian Equity-22.71%16.83%6.96%-3.50%CAD93%
All Australian Equity-24.89%19.90%3.22%-7.07%AUD91%
All UK Equity-27.56%13.83%-1.01%-18.41%GBP86%
All Africa Equity-25.54%19.75%-0.96%-11.39%ZAR95%

All Active Fixed Income Strategies

RegionQ1 2020Q2 2020Q3 2020YTD 2020Currency% Reporting
All Fixed Income Strategies-5.80%7.49%2.88%3.94%USD85%
All US Fixed Income-2.43%5.77%2.00%5.11%USD86%
All Global Fixed Income-7.53%8.30%3.75%3.79%USD85%
All Emerging Mkts Fixed Income-14.31%12.72%2.57%-1.10%USD87%
All Europe Fixed Income-7.39%6.70%2.17%0.92%EUR79%
All Canadian Fixed Income-0.93%7.53%1.28%7.87%CAD90%
All UK Fixed Income-1.05%7.87%0.44%6.24%GBP71%
All Asia Pacific Fixed Income-5.08%6.49%3.07%3.79%USD74%
All Africa Fixed Income-3.27%4.70%1.53%2.85%ZAR82%
All Australian Fixed Interest0.49%1.85%1.46%3.89%AUD95%
All Japan Fixed Income-0.41%-0.18%0.37%-0.16%JPY82%

All Active Balanced/Multi-Asset Strategies

RegionQ1 2020Q2 2020Q3 2020YTD 2020Currency% Reporting
All Global Balanced Strategies-15.99%12.72%5.40%-0.69%USD81%
All Global Balanced / TAA-14.30%10.48%5.10%-0.75%USD85%
All US Balanced / TAA-13.92%12.19%5.30%2.29%USD89%

Equity Strategies

The average of all active traditional equity strategies was +7.75% in Q3 2020 and -0.55% YTD. The story of Q3 was twofold; there is the ongoing dominance of growth over value performance and then the differing levels of performance dispersions seen in different exposures across the globe. Below are the top performing eVestment equity strategy universes in Q3 and YTD 2020:

Top Five Universes in Q3

UniverseAvg Return
Nordic Equity17.74%
India Equity17.61%
Korea Equity17.50%
Onshore China A-Shares Equity16.04%
Vietnam Equity15.91%

Top Five Universes YTD 2020

UniverseAvg Return
Onshore China A-Shares Equity28.39%
Offshore China Equity24.59%
US All Cap Growth Equity23.27%
US Large Cap Growth Equity21.82%
Global All Cap Growth Equity18.68%

Dominance of growth over value equity
Across eVestment’s largest regional universes, growth equity strategies have outperformed value by historically significant margins in each quarter of 2020. The charts below show the difference between median growth and value strategies in every quarter since Q1 2000.

Within US-focused equity strategies the difference is most muted, though it is still at a larger level than any other non-2020 quarter since Q1 2009. Removing US markets and looking at EAFE, Global EM and ACWI ex-US strategies, the differences in favor of growth equities are still near peak levels over at least the last twenty years. While differences are currently near long-term highs, growth over value has been a theme generally in place across these markets since the beginning of 2017.

US

Global

EAFE

Global EM

ACWI ex-US

Performance dispersions remain significant outside US
The difference in returns of the top 10th percentile performing product to the bottom 90th percentile product is how we measure the dispersion of returns in this analysis. The charts below show quarterly dispersions of returns for the largest US and ex-US equity market segments, globally.

For US-focused strategies, the dispersion across strategies in Q1 and Q2 2020 was wider than it had been since 2001, even wider than during the Global Financial Crisis, indicating that across US sectors and other segments, the variety of returns produced was extremely significant. In Q3 we saw that gap narrow to elevated, yet similar levels to what has occurred periodically over the last several years.

Outside of US equities, however, the differences of returns being produced were still larger in Q3 2020 than at any point since 2008/2009. While the dispersions are not as high as Q1 or Q2 2020, they highlight the fact that among managers operating outside of US equity markets, there are significant differences in returns being produced by country, sector and cap/style exposures.

It is worth noting that the percentage point scales on the charts are different with that of the US having the largest range. The dispersion among US managers in Q3 was still larger than that within any of the other regions, but it is the inter-region historical differences that are of most interest.

Active US Equity

Active EAFE Equity

Active Emerging Markets Equity

Active ACWI ex-US Equity

Fixed Income Strategies

The average return generated from all active, non-cash fixed income strategies globally in Q3 was +2.88% in USD terms, which puts the average YTD 2020 return at +3.94%. Strategies focused on convertible securities produced the best returns in the quarter, while long duration US-focused products are producing the best average returns YTD (+13.90%).

Top Five Universes in Q3

UniverseAvg Return
Global Convertibles8.10%
US Convertibles7.97%
Preferred Securities7.62%
Europe Fixed Income - Convertibles7.32%
Europe Fixed Income - Secured Loans7.30%

Top Five Universes YTD 2020

UniverseAvg Return
US Long Duration Fixed Income13.90%
Global Convertibles11.41%
US Convertibles11.00%
US TIPS / Inflation Fixed Income8.55%
Europe Fixed Income - Government8.19%

Unlike equity strategies, the dispersion of returns produced by fixed income products across major global regional markets was not only down significantly from Q1 and Q2 2020 levels but was not necessarily higher than levels commonly seen across the last five years. Within active Global Emerging Markets strategies for example, wide difference are common and the differences in Q3 were actually closer to the narrowest seen over time than the widest.

Active Global Fixed Income

Active Emerging Markets Fixed Income

From a credit quality perspective, high yield markets continued to rebound and, but this was driven primarily by markets early in the quarter. The differentials between high and core performance in Q3 was most noticeable within the US and Canadian markets and less so across European markets.

US High Yield

Canada High Yield

Pan-European High Yield

Eurozone High Yield

Active Equity Strategies vs. Benchmarks in Q3 & YTD

Outside of US and emerging markets, managers were generally mostly able to outperform their strategies’ primary universe benchmarks in Q3, with those operating in European and EAFE markets doing so most consistently in Q3 and YTD 2020.

Percentage of Products Outperforming Benchmarks: Primary Universes

At the primary strategy level there are interesting points to be made about the growth over value trend and how it relates to benchmarks.

While growth strategies have been significantly outperforming value for a prolonged period, value managers at the All Cap and Large Cap segments are generally doing a better job outperforming their benchmarks. 66% of US Large Cap Value managers are outperforming the universe’s preferred benchmark YTD 2020 and 64% of US All Cap Value managers are doing the same. Their Growth counterparts have generally found it much more difficult to outperform their very well-performing benchmarks. The picture is different however going down the market cap spectrum, however, with Core strategies within Mid Cap and smaller consistently having more trouble outperforming their benchmarks.

Percentage of Products Outperforming Benchmarks: US Primary Strategies

Outside of US markets we can see where there has been consistent outperformance and underperformance of benchmarks. Generally, EAFE and Pan-Europe strategies have been consistently beating their universes’ preferred benchmarks while Global Emerging Markets have consistently been having the most difficult time in the current environment.

Percentage of Products Outperforming Benchmarks: Ex-US Primary Strategies

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