Actively managed funds performed badly compared to indexes

If your client put their money into an actively managed Canadian small to mid-cap equity fund, it probably returned more over the past year than the S&P/TSX Completion index. But only 11% of actively managed Canadian equity funds managed to outperform the S&P/TSX composite over the past three years, S&P Global said in its SPIVA Canada Scorecard released Wednesday.

Worse, less than 6% of actively managed Canadian equity funds outperformed the S&P/TSX composite over five years, S&P found.

Released twice a year, the SPIVA Canada Scorecard measures the performance of actively managed funds against their benchmark indexes.

In 2021, the S&P/TSX Composite posted its best return in the past 10 years: 25.1%. But the asset-weighted average return for actively managed Canadian equity funds was about a point and a half lower (23.5%) in 2021.

Meanwhile, the asset-weighted average return for actively-managed Canadian small- to mid-cap equity funds was 22.5% over 2021, better than the S&P/TSX Completion, which only returned 15%. Only 12.5% of actively managed Canadian small- to mid-cap equity funds underperformed the S&P/TSX Completion index over the past year.

U.S. equity funds fared particularly poorly in 2021. “On an equal-weighted basis, U.S. equity funds underperformed the S&P 500 (CAD) by 5.9% over the past year, the worst relative performance of any fund category,” S&P Global said.

Over one-, three-, five- and 10-year periods, the category that consistently underperformed the least was active Canadian small- and mid-cap equity. Over the 10 years ended Dec. 31, only 57% of funds underperformed their benchmark, the S&P/TSX Completion index.

Meanwhile, the 10-year underperformance figures for active funds in the other six categories ranged from 81% (Canadian equity vs. the S&P/TSX composite) to 95% (Canadian-focused equity vs. 50% S&P/TSX Composite index, 25% S&P 500 [CAD] and 25% S&P EPAC LargeMidCap [CAD]), according to the report.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.