The majority of mutual funds across seven categories struggled to keep pace with their indexes
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.”