Actively managed mutual funds in the Canadian equity and U.S. equity fund categories lagged indices in the last quarter of 2006, Standard & Poor's, the leading provider of independent investment research, ratings, and indices, said today. According to the Standard & Poor' Indices Versus Active Funds Scorecard (SPIVA) for Canada, just 36.4% of Canadian equity funds beat the S&P/TSX Composite Index, while only 28.4% of U.S. equity funds outperformed the S&P 500 Index (measured in Canadian dollars). In contrast, 65.9% of actively managed Canadian small-cap equity funds outpaced the S&P/TSX SmallCap Index.
"Looking over longer time periods, indices continue to outperform a majority of active funds," said Steve Rive, vice president of Canadian Index Services at Standard & Poor's. "Over the last five years, less than 11% of actively managed Canadian equity funds have beat the S&P/TSX Composite Index."
In the same five-year period ended Dec. 31, 2006, only 14.5% of U.S. equity funds have outpaced the S&P 500 Index, while 46.5% of actively managed Canadian small-cap funds have outperformed the S&P/TSX SmallCap Index.
Five-year average fund returns to the end of 2006 show active funds have underperformed the S&P/TSX Composite Index and the S&P/TSX Capped Composite, both on an equal-and asset-weighted basis, by roughly 300 basis points.
Survivorship
A key attribute of the SPIVA methodology is its correction for survivorship bias, which can significantly skew results as funds liquidate or merge. The five-year survivorship is about 60% for the Canadian equity and Canadian small-cap mutual fund categories, meaning that almost 40% of funds in these categories has merged or liquidated in the past five years. For the U.S. equity fund category, during the same period, survivorship is only 42%. In other words, out of the total funds in this category that existed five years ago, less than half remain today.