Active Management Adds Value for the 4th Consecutive Quarter - according to Russell Investments Canada Limited

Active Management Adds Value for the 4th Consecutive Quarter - according to 
Russell Investments Canada Limited 
Russell Canadian Active Manager Report Highlights 

    --  74% of large cap managers beat the S&P/TSX Composite Index in
        the third quarter of 2013
    --  Value managers lead but all styles outperform again
    --  Q4 environment not so clear

TORONTO, Oct. 31, 2013 /CNW/ - For the fourth consecutive quarter, the 
majority of large cap investment managers in Canada added value and beat the 
benchmark. In the third quarter of 2013, 74% of large cap managers 
outperformed the S&P/TSX Composite Index, following a record 96% in the second 
quarter. In the third quarter, the median large cap manager return was 7.0%, 
compared to the S&P/TSX Composite Index's return of 6.2%.

"The last time we experienced four consecutive quarters in which large cap 
managers beat the benchmark was the second quarter of 2007 and overall that 
environment was not nearly as strong as what we've seen this time", highlights 
Kathleen Wylie, Head, Canadian Equity Research at Russell Investments Canada. 
"In the most recent four quarters, an average of 83% of large cap managers 
beat the benchmark with the median manager return ahead of the benchmark by 
roughly 150 basis points on average. That's significantly stronger than in 
2007 when an average of 57% of large cap managers beat the benchmark in four 
consecutive quarters by an average of 30 basis points."

The Russell Canadian Active Manager Report is produced quarterly and is based 
on recently released data from more than 150 Canadian institutional equity 
investment manager products.

In the third quarter of 2013, there was less sector breadth than in the 
previous quarter, with only four out of 10 sectors beating the benchmark, down 
from seven out of 10 in the second quarter. "The performance in the third 
quarter was not driven by sector positioning," highlights Wylie, "as active 
managers were only favourably positioned in three out of 10 sectors. Normally, 
that would make for a challenging active management environment, but the 
performance of most investment managers was driven by stock selection, which 
we believe adds more value than sector bets in the long run."

Large cap investment managers in Canada on average are underweight the Energy 
sector, which outperformed the benchmark and was the 2(nd) highest contributor 
in the third quarter. Highlighting the importance of stock selection in the 
quarter was Suncor Energy Inc., which was up nearly 20%, and the 
top-contributing stock in the Index. It was held by 74% of large cap managers 
at an average overweight of more than 1%, so that helped their 
benchmark-relative performance.

Investment managers in Canada are also underweight the Financials sector on 
average, which was the third top-performing sector, but within Financials, 
managers were heavily weighted to the bank stocks so that would have benefited 
benchmark-relative performance. Toronto Dominion Bank was the second 
top-contributing stock in the Index, up 11% and held by 88% of large cap 
managers. Royal Bank of Canada was the third top contributor, up 9% in the 
quarter and held by 81% of large cap managers. Bank of Montreal, also a top 
contributor, is less widely held but was still owned by more than half the 
large cap managers at the start of the quarter. "Of the top 10 contributing 
stocks, five were banks," highlighted Wylie "and all of them were held by the 
majority of investment managers."

After declining for three consecutive quarters, gold stocks were strong in the 
quarter, up 8%. "Large cap managers on average are underweight the gold stocks 
relative to the benchmark weight, so that can make it challenging for managers 
to beat the benchmark when gold stocks rise," explains Wylie. "However, the 
weight of gold stocks in the Index at the start of the third quarter had 
dropped to less than 6% and large cap managers on average were only 3% 
underweight. That's a huge change from mid-2011 when the weight of gold stocks 
peaked at 14% and large cap managers on average were nearly 6% underweight on 

Investment manager performance was also helped by what they did not own in the 
quarter. BlackBerry Ltd., formerly Research in Motion, fell 27% in the third 
quarter but was only held by 31% of large cap managers. Cameco was also a 
negative contributor, falling 14% but only held by 34% of large cap managers.

Potash Corp. is a stock that did not help active managers since it was the 
largest negative contributor and was held by 67% of large cap investment 

Value Slightly Ahead of Growth But All Styles Outperform

In the third quarter, 76% of value managers beat the benchmark compared to 75% 
of growth and 55% of dividend-focused managers. All manager medians were ahead 
of the benchmark: the median value manager return was 7.4%, the median growth 
return was 7.0% and the median dividend manager return was 6.5%. Sector 
positioning overall did not explain the differences in performance although 
value managers benefited most from having the largest overweight to the 
Consumer Discretionary sector, growth managers benefited from being overweight 
Energy on average, and dividend managers benefited from having the largest 
underweight to Materials.

The strength in gold stocks helped growth managers the most since they have 
the smallest underweight compared to the other styles. Growth managers were 
2.6% underweight at the start of the third quarter compared to value managers 
who were 3.1% underweight and dividend-focused managers who were 4.1% 

"Most quarters, it's easy to explain why one style did better than another but 
it really wasn't clear cut this quarter," says Wylie. "It just came down to 
stock picking and really there wasn't even a big difference between the 
highest and lowest manager return this quarter. The top performing manager 
return was 11.1% and the bottom return was 2.2% for a difference of just under 
9%, which was the lowest in three years."

Fourth Quarter Looking Mixed So Far

Sector breadth has improved so far in the final quarter of the year with six 
out of 10 sectors ahead of the benchmark and large cap managers favourably 
positioned in five out of 10 sectors. The Energy and Materials sectors are 
underperforming, which should help large cap managers who are underweight on 
average. Large cap managers have their largest overweight in Consumer 
Discretionary stocks, which are outperforming. They are also likely benefiting 
from overweights to Consumer Staples and Industrials, with both sectors among 
the top performers.

By style, performance appears to be mixed so far in the fourth quarter. Value 
managers may be leading the way again compared to growth managers, with their 
overweights to Consumer Staples and Consumer Discretionary and their 
underweights to Energy and Materials helping. Growth managers are likely being 
hurt by their 2% overweight to the Energy sector, which is underperforming so 
far in the fourth quarter. Dividend managers are likely being helped by the 
underperformance of Energy and Materials and the outperformance of Financials 
and Utilities. They have their largest overweight in Telecommunication 
Services so how that sector ends up performing will impact performance.

"Right now things are changing day-to-day so it's difficult to get a clear 
picture but we are generally in a favourable active management environment," 
highlights Wylie. "I know that during the financial crisis, investors began to 
question the value of active management but the improvement highlights that 
over the long run it does add value. In the last 10 years, 55% of large cap 
managers have beaten the benchmark on average per quarter and the 
first-quartile manager return has beaten the S&P/TSX Composite return by 165 
basis points on average per quarter. Even over five years, the numbers are 
exceptionally strong with the first quartile manager return ahead by 200 basis 
points on average per quarter."

Russell Releases Research Paper on the Canadian Active Management Environment

For a longer term perspective, Russell Investments has released a research 
paper titled "Equity Active Management in Canada: The Changes and the 
Challenges," which digs deep into the active management environment in Canada 
and explains what factors have had the largest impact on Canadian equity 
managers' ability to beat the benchmark in last five years and why the 
environment has improved in the last year. The paper can be found at

For more information on the benefits of active management and for information 
on Russell Investments please contact us at 1-888-509-1792. For institutional 
clients, please contact us at 1-866-737-2228.

About Russell Investments

Russell Investments (Russell) is a global asset manager and one of only a few 
firms that offers actively managed multi-asset portfolios and services that 
include advice, investments and implementation. Working with institutional 
investors, financial advisors and individuals, Russell's core capabilities 
extend across capital market insights, manager research, portfolio 
construction, portfolio implementation and indexes.

Russell has more than C$253.7 billion* in assets under management (as of 
9/30/2013) and works with over 2,500 institutional clients, independent 
distribution partners and individual investors globally. As a consultant to 
some of the largest pools of capital in the world, Russell has US$2.4 trillion 
in assets under advisement (as of 6/30/2013). It has four decades of 
experience researching and selecting investment managers and meets annually 
with more than 2,200 managers around the world. Russell traded more than 
US$1.4 trillion in 2012 through its implementation services business. 
Approximately US$4.1 trillion in assets are benchmarked to the Russell Indexes.

Headquartered in Seattle, Washington, Russell operates globally, including 
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*includes more than US$70 billion of derivative overlay assets under 
management not included prior to June 30, 2013

Important Information

Nothing in this publication is intended to constitute legal, tax securities or 
investment advice, nor an opinion regarding the appropriateness of any 
investment, nor a solicitation of any type. This is a publication of Russell 
Investments Canada Limited and has been prepared solely for information 
purposes. It is made available on an "as is" basis. Russell Investments Canada 
Limited does not make any warranty or representation regarding the information.

Unless otherwise stated all index data is sourced from ©BNY Mellon Asset 
Servicing. All rights reserved.

Russell Investments and the Russell Investments logo are registered trademarks 
of Frank Russell Company, used under license by Russell Investments Canada 

Copyright © Russell Investments 2013. All rights reserved. This material is 
proprietary and may not be reproduced, transferred, or distributed in any form 
without prior written permission from Russell Investments.

SOURCE  Russell Investments Canada Limited 
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