SPIVA Scorecard reveals underperformance against benchmarks for most funds
The first half of 2023 proved challenging for Canada’s actively managed funds according to a new analysis.
The S&P Indices Versus Active (SPIVA) Scorecard shows reveals that more than two thirds of active funds underperformed their benchmarks in several categories, following a turbulent year in 2022.
The greatest underperformance was by Global Equity funds where 84% underperformed, followed by Canadian Focused Equity funds at 78%, U.S. Equity funds at 76%, and Canadian Equity funds at 71%, while International Equity funds at 66% posted the lowest level of underperformance.
Underperformance typically increased over time with the above percentages based on 6 months.
Canada’s S&P/TSX Composite Index rebounded from a weak 2022 and was up 6% in the first half of 2023 - while Canadian Equity funds gained 5.1% and 5.4% on equal- and asset-weighted bases, respectively.
The U.S. S&P 500 posted a 14% gain in Canadian dollar terms, outpacing the Canadian large-cap index (S&P/TSX60) by 8%, driven by the outsized performance of the tech sector.
Mega-caps and Shopify
Although Canadian fund managers could have seen greater potential to outperform through tilting towards U.S. large-cap stocks, the SPIVA analysis suggests that their underweight U.S. mega-caps – which posted a 28% gain in U.S. dollar terms – limited their success.
Additionally, being underweight Shopify Inc. proved costly for fund managers with this stock outperforming the S&P/TSX 60 by 76% in the first six months of the year and becoming one of the ten best performers on the index.
U.S. Equity funds domiciled in Canada also performed poorly (76% underperformed) with a focus on international equities rather than U.S. mega-caps again harming their outcomes.
“Overall, an amalgamation of headwinds led to a relatively dreary set of results, with an average of 76% of funds across categories underperforming their respective benchmarks in H1 2023. Long-term trends were even poorer, as our statistics show that the average underperformance increased to 90% over the 10-year horizon,” the SPIVA analysis stated.
