In a pack of laggards, Canada's active managers have been the worst

Active mutual fund managers have a long history of underperforming their benchmarks on the whole, and that trend seems to have held up to the halfway point of 2021.

In a new blog post, Sherifa Issifu, associate, Index Investment Strategy at S&P Dow Jones Indices went through the results of the final regional edition of the SPIVA mid-year 2021 scorecards, which looked at how active funds in the U.S., Canada, and seven other regions around the world fared against their respective benchmarks.

Among five developed markets examined, Australia’s mutual funds stacked up best against their benchmark, with less than half (44%) doing worse than the S&P/ASX 200 for the year ended on June 30, 2021. Meanwhile, Canada had the dubious distinction of having the greatest proportion of underperforming mutual funds, with 60% lagging the S&P/TSX Composite. The U.S. and Japan did only slightly better, as 58% of mutual funds in the two regions did worse than their respective benchmarks.

“Intriguingly, although we often hear that index-based strategies ‘don’t work’ as well in Emerging Markets, the rate of underperformance was generally higher in those markets,” Issifu said.

Among developing regions, India was the worst performer, with 86% of mutual funds underperforming the S&P BSE 100 index for the 12-month period ending on June 30, 2021. Mexico and Brazil posted similarly dismal performance, as 84% and 83% of Mexican and Brazilian mutual funds, respectively, lagged their corresponding benchmarks.

South Africa was the best performer among emerging markets, with 56% of funds in the region lagging the S&P South Africa DSW Capped Index.

“This speaks to the shrinking alpha that is often seen as markets increasingly professionalize; put simply, it becomes harder and harder to remain ‘above average,’” Issifu said.

Drilling into the underlying figures, she said Canadian dividend and income equity funds were the worst-performing fund category across all of SPDJI’s regional reports, with 98% underperforming the S&P/TSX Canadian Dividend Aristocrats. At the other extreme, U.S. bond fund managers showed standout performance, and South African Short-Term Bond Fund managers impressed with just 8% trailing the STeFI Composite index.

“[T]he best active U.S. equity managers over the one-year period ending in June 2021 were, perhaps surprisingly, more likely to sit on a different continent than the stocks they managed,” Issifu said.

She noted that while 58% of U.S. equity managers based in the country lagged the S&P 500, just 51% of active managers based in Japan and Europe trailed the American benchmark.