The majority of mutual funds across seven categories struggled to keep pace with their indexes
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There have been very few reasons for investors to invest in active funds over the past few years, and a new report suggests that trend has yet to reverse for Canadian mutual funds.
According to the recently released SPIVA Canada Mide-Year 2018 Scorecard, six out of seven fund categories underperformed their respective benchmarks as of June 30. Canadian equity indexes benefited from an energy-led rally and surging healthcare and information technology stocks, but 93.22% of funds in the Canadian equity category did not do as well as the S&P/TSX Composite over the previous one-year period.
Over that same timeframe, the S&P/TSX Completion Index outperformed 90.91% of Canadian small-/mid-cap equity managers; larger funds appeared to do better than their smaller peers.
The pattern persisted across three other categories:
- 94.44% of Canadian Focused Equity Funds lagged their blended benchmark, which comprises the S&P/TSX Composite (50%), the S&P 500 (25%), and the S&P EPAC LargeMidCap (25%);
- Nearly 90% of International Equity funds fell behind the S&P EPAC LargeMidCap — a notable change from the 73.08% reported in the SPIVA Canada Year-End 2017 Scorecard;
- 72.41% of US Equity Funds failed to outdo the S&P 500 (CAD) over a one-year horizon, compared to 69.41% in the previous scorecard;
Yield-focused active equity strategies bucked the trend. As the Bank of Canada declared consecutive rate hikes, Canadian Dividend & Income Equity funds continued to deliver the best performance compared to any other category over a one-year horizon. In addition, around two thirds (67.57%) of the funds in that category beat the S&P/TSX Canadian Dividend Aristocrats Index.
“But 100% of the category’s funds lagged the benchmark over a 10-year horizon,” the report said. During that long-term period, nine out of every 10 funds overall underperformed their corresponding benchmark, and a similar story was found over a five-year horizon.
Looking at the equal-weighted performance of actively managed funds, the report showed the same six out of seven fund categories underperforming their indexes over the one-year period ending June 30, with Canadian Dividend & Income strategies being the exception. Over five-year and 10-year periods, all seven categories’ exhibited equal-weighted performance that was worse than their benchmarks.
“Fund survivorship (or the lack of) played a large role in the long-term figures,” the report said. “[M]ore than half of all funds in each category that were part of the investment universe 10 years ago have since been liquidated or merged.”
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