Active managers continue to underperform

(September 2008) Thanks to quarter-to-quarter volatility, active managers, once again, failed to beat the benchmark in Q2.

Standard & Poor’s Indices Versus Active (SPIVA) Funds Scorecard reports that just 31.2% of Canadian equity active fund managers outperformed the S&P/TSX Composite Index. While that might seem low, compared to long-term numbers, that result is actually pretty good. For the year, 15.2% of active managers beat the benchmark; that number drops to 11.6% for three years and 6% for five years.

Jasmit Bhandal, a director at S&P says these low numbers prove that investors should use indexing and active management to get the best return. “We always take the view that people can do both active and passive investing,” she says. “Index plays will give you cheaper, efficient exposure to certain markets, but if you know a manager can add value in the long term in an area, it makes sense to do that.”

All hope was not lost for the active space, though, as 57.7% of managers in the Small/Mid Cap equity category beat the S&P/TSX Completion index. That’s an increase of 33.7% over Q1.

Bhandal explains that, in the second quarter, managers likely had less exposure to financials, which underperformed. “The top three sectors in terms of size are energy financials and materials. Energy and materials did well, but financials didn’t over the quarter,” she says. “Maybe managers were underweight financials which could result in outperformance.”

Managers in the Canadian focused equity category also did well, beating the benchmark 51.7% of the time.

American active managers fared better than their Canadian counterparts, with 51.2% of funds outperforming the S&P 500. In international equities, just 31.8% surpassed the benchmark, while 55.9% of global equity fund managers beat their target.

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com