Indices Lead Canadian Active Funds In First Half of 2006 - Latest SPIVA Scorecard Shows Only 48.4% Of Canadian Small-Cap Funds Beat The Index

Actively managed mutual funds in the Canadian equity, Canadian small-cap, and U.S. equity fund categories lagged indices in the first half of 2006, Standard & Poor's said today. According to the Standard & Poor's Indices Versus Active Funds Scorecard (SPIVA) for Canada, the S&P/TSX Composite Index outperformed 81.2% of Canadian equity funds through June, while the S&P 500 Index outperformed 61.4% of U.S. equity funds. In a reversal from the last few quarters, only 48.4% of Canadian small-cap equity funds beat the S&P/TSX SmallCap Index.

Over longer time periods, Standard & Poor's continues to observe indices outperforming a majority of active funds. Over the past five years, 13.9% of Canadian equity funds have outperformed the S&P/TSX Composite Index, 43.8% of Canadian small-cap funds have beaten the S&P/TSX SmallCap Index, and 25% of U.S. equity funds have outperformed 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. Canadian small-cap equity funds fared better over this time frame outperforming the S&P/TSX SmallCap Index.

"Active managers are having a hard time in this year's volatile markets," said Jasmit Bhandal, director of business development at Standard & Poor's Canadian Index Services. "In particular, there has been a shift in the small-cap space, where over the last few quarters we had seen active managers adding value above and beyond the index. Year-to-date, fewer active small-cap funds have been able to beat the index."

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 66% for the Canadian equity, Canadian small-cap, and U.S. equity fund categories. This suggests that approximately one in three funds in these three categories has merged or liquidated in the past five years. Three-year survivorship is between 53% and 78%.

The complete second-quarter SPIVA Canada scorecard, as well as previous quarterly SPIVA reports, is available on www.spiva.standardandpoors.com.