Fewer active funds posted higher returns than their benchmarks in the third quarter of 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.
Between July and September 2009, only 36.0 per cent of Canadian Equity active funds and 31.8 per cent of active funds in the Canadian Small/Mid Cap Equity category beat the S&P/TSX Composite Index.
This quarter has been challenging for active funds with exposure to markets outside of Canada. Almost 70 per cent of the Canadian Focused Equity funds that outperformed the blended S&P/TSX Composite Index in Q2 posted returns below the index in Q3. While 61.0 per cent of U.S. Equity funds were able to outstrip the S&P 500 in Q2, results diminished in Q3 with less than half, 40.3 per cent, posting returns above the index.
"More and more Canadians have shown interest in passive investment and the index funds and ETF products available to them," says Jasmit Bhandal, director at Standard & Poor's Canada. "Every investment decision comes with an element of risk and SPIVA is designed to help investors do their homework."
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 12.1 per cent and 5.9 per cent, respectively, of actively-managed Canadian Equity funds have outperformed the S&P/TSX Composite Index.
For a comprehensive, visual explanation of the results, including an interview with Jasmit Bhandal, click here.
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.