Canada Active Fund Managers Are Left Behind by Benchmark Indexes

  • Only 26% of Canada equity funds beat the S&P/TSX in past year
  • No Canadian managers have beaten the S&P 500 over five years

No Canadian active fund manager has beaten the S&P 500 Index over a five-year period and most haven’t even topped their domestic benchmark in the past year, according to a report from S&P Dow Jones Indices Thursday.

Only 26 percent of Canadian equity funds outperformed the S&P/TSX Composite Index during the 12 months ended June 30, data from S&P’s SPIVA Canada scorecard showed. Canadian managers running U.S. equity funds fared by far the worst, with fewer than 6.2 percent eclipsing the S&P 500 over the past year.

The first half of 2016 was a banner period for the S&P/TSX with previously unwanted commodities producers leading the bounce back from an 11 percent slide in the second half of 2015. During the first six months of the year the Canadian equity benchmark trailed only New Zealand as the top-performing developed market in the world with an 8.1 percent advance, including its best quarterly gain in two years in the second quarter as the Federal Reserve put off plans for an interest-rate increase and the surprise U.K. secession vote proved to be a temporary blip.

“The Canadian equity market rebounded sharply during the first half of 2016,” S&P analysts Aye Soe and Ryan Poirier wrote in the semi-annual report. “The gains, however, were not sufficient to overcome the losses sustained in the second half of 2015.”

A 51 percent rally in raw-materials producers in the first half amid a 25 percent jump in gold propelled gains in the S&P/TSX. Crude also rebounded during this period, rising from a low of $34.54 a barrel on Jan. 20 to a high of $53 on June 8.

None of the managers topped the S&P 500 over the past five years, when the U.S. equity benchmark rallied 59 percent. The results over three years weren’t much better, with just 1.2 percent outperforming.

“Over the longer term, such as the five-year investment horizon, the results are unequivocal,” the analysts wrote. “The data show the losing pattern repeating across most categories, as the majority of active managers either underperformed or drew parity with their respective benchmarks.”

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