Large-cap managers performing above and beyond

Five consecutive quarters of success prove the value of large-cap managers

The latest Russell Active Manager Report shows that active large-cap managers continue to add value, as the third quarter marks the fifth consecutive quarter that large-cap managers have beaten the benchmark.

“These relatively high numbers favouring active management may surprise some investors,” says Kathleen Wylie, head of Canadian equity research at Russell Investments Canada, “but the objective data speaks for itself.”

In fact, large-cap managers made up 75% of those managers who beat the S&P/TSX Composite Index.

It is the highest percentage since the fourth quarter of 2013, increasing from 62% in the second quarter. The median large-cap investment manager return was -6.2% for the third quarter, notably better than the S&P/TSX Composite’s return of -7.9% (its steepest quarterly decline in four years).

“No question the third quarter proved difficult for investors and their portfolios given the sell-off in equities both in Canada and globally,” says Wylie, “but amid the negative numbers we saw the value of active managers.”

The Russell Investments Canada Active Manager Report  is based on a quarterly survey of 151 Canadian institutional money manager products.

Further, using one-year returns for the period ending Sept. 30, 2015, 66% of large-cap managers outperformed, exceeding the benchmark by an average of 650 basis points. 

“We performed additional analysis on the investment returns for this report that reaffirmed active management in Canada added value over the past five years,” says Wylie.

This analysis involved looking at 90 large-cap investment managers who reported five-year annualized returns, and correcting for survivorship bias to show that 64% of large-cap managers had indeed outperformed the Index.  The data also showed that the average excess return of outperforming managers over the five-year period was 330 basis points.

“Our calculations show active large-cap managers outperformed the benchmark whether you slice and dice the data to look at five-year annualized returns or the quarterly average,” says Wylie. ”Over the past five years, the median large-cap manager outperformed the benchmark by more than 55 basis points per quarter, while the top quartile manager return was 180 basis points ahead of the benchmark on average per quarter.”