"By controlling for survivorship bias, SPIVA offers investors a clearer picture of how mutual funds are doing in Canada," said Steve Rive, Vice President, Canadian Index Services at Standard and Poor's. "For example, this allows us to measure "active risk". Active risk is the risk that the fund you choose today will not beat the index over the period that you plan to hold it. SPIVA shows that active risk in Canadian mutual funds is a very real issue that investors need to be aware of."
Longer-term results continue to be consistent with past results. Over the last three years, 5.9% of actively managed Canadian Equity funds have outperformed the S&P/TSX Composite Index, 54% of actively managed Canadian SmallCap funds have outperformed the S&P/TSX SmallCap Index and 19.6% of U.S. Equity funds have outperformed the S&P 500 Index. Five-year average fund returns show active funds outperforming the S&P/TSX Composite Index and underperforming the S&P/TSX Capped Composite, both on an equal- and asset- weighted basis.
The SPIVA methodology is designed to provide an accurate and objective apples-to-apples comparison of funds' performance versus their appropriate style indices, correcting for factors that have skewed results in previous index-versus-active analyses in the industry. SPIVA scorecards show both asset-weighted and equal-weighted averages, include survivorship bias correction to account for funds that may have merged or been liquidated during the period under study, and show style consistency for each style group across different time horizons.
Survivorship
A key attribute of the SPIVA methodology is its correction for survivorship bias, which can significantly skew results as funds liquidate or merge. Five-year survivorship ranges from 72% to 79% for the Canadian Equity, Canadian SmallCap, and U.S. Equity fund categories. This suggests that roughly one in four funds in these three categories has merged or liquidated in the past five years.
The complete second-quarter SPIVA Canada scorecard, as well as previous quarterly SPIVA reports, is available on www.spiva.standardandpoors.com.
About SPIVA
The SPIVA methodology is designed to provide an accurate and objective apples-to-apples comparison of funds’ performance versus their appropriate style indices, correcting for factors that have skewed results in previous index-versus-active analyses in the industry. SPIVA scorecards show both asset-weighted and equal-weighted averages and include survivorship bias correction to account for funds that may have merged or been liquidated during the period under study. Fund categorizations are as defined by the Canadian Investment Funds Standards Committee (CIFSC), and fund data is drawn from Fundata’s mutual fund database.
