Few Canadian equity active funds posted higher returns than the S&P/TSX Composite in 2009, according to the latest results for the Standard & Poor's Indices Versus Active Funds Scorecard (SPIVA) for Canada released today. SPIVA is produced by Standard & Poor's, the world's leading index provider.
In 2009, only 39.2% of Canadian equity active funds beat the S&P/TSX Composite Index. In contrast, 52% of active funds in the Canadian Small/Mid Cap Equity category beat the S&P/TSX SmallCap Index.
Similar to domestic funds, there were mixed results for active funds in the categories with exposure to markets outside of Canada. Almost 52% of the International Equity funds outperformed the S&P EPAC LargeMidCap Index, while only 39.7% of U.S. Equity funds were able to outstrip the S&P 500 in 2009.
"Passive investing provides a cost efficient way to access capital markets," says Jasmit Bhandal, director at S&P Indices in Canada. "For many investors the investment process is quite opaque. In contrast, an indexed approach gives you a transparent, rules-driven framework for investing."
As the average holding period for most investors is well beyond three months, a look at SPIVA's long term numbers will be most relevant for Canadians. Across all categories, the majority of active funds have been unable to exceed the returns of their respective benchmark. In three-year and five-year periods, only 12.5% and 7.45%, respectively, of actively-managed Canadian Equity funds have outperformed the S&P/TSX Composite Index.
SPIVA reports the performance of actively managed Canadian mutual funds corrected for survivorship bias, and shows equal- and asset-weighted peer averages.
Survivorship
Many funds might be liquidated or merged during a period of study, which can skew results. However, for investors making an investment decision at the beginning of the period, these funds are part of the opportunity set. A key advantage of the SPIVA report is its correction for survivorship bias. For example, if there are 100 funds in the beginning of a five-year period and at the end of the period 20 have dropped out or merged leaving 80 left, then this would imply 80% survivorship.