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Actively managed mutual funds in the Canadian equity and U.S. equity fund categories lagged indices in the nine months ended September 2006, Standard & Poor's, the leading provider of independent investment research, indices, and ratings, said today. According to the Standard & Poor's Indices Versus Active Funds Scorecard (SPIVA) for Canada, only 26.7% of Canadian equity funds outperformed the S&P/TSX Composite Index, while just 21.6% of U.S. equity funds beat the S&P 500 Index. Actively managed Canadian small-cap equity funds proved the exception, with 56.3% of them outpacing the S&P/TSX SmallCap Index.
"Over longer time periods we continue to see indices outperforming the majority of active funds," said Steve Rive, vice president of Canadian Index Services at Standard & Poor's. "Notably, less than 10% of actively managed Canadian equity funds have beat the S&P/TSX Composite Index in the last five years."
In addition, over the past five years, 47.2% of Canadian small-cap funds have outperformed the S&P/TSX SmallCap Index, and almost 15% of U.S. equity funds have outpaced the S&P 500 Index. Five-year average fund returns show active funds underperforming the S&P/TSX Composite Index and the S&P/TSX Capped Composite, both on an equal- and asset-weighted basis.
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 60% to 64% for the Canadian equity and Canadian small-cap fund categories, indicating that 36% to 40% of funds in these categories have merged or liquidated since 2001. For the U.S. equity fund category, survivorship is only 44% for the same period. This suggests that out of the total funds in this category that existed five years ago, less than half remain today.
The complete third-quarter SPIVA Canada scorecard, as well as previous quarterly SPIVA reports, is available on www.spiva.standardandpoors.com.
