- 2018 was a topsy-turvy year for global equity markets, and Canadian equities were no exception. After trade wars weighed on sentiment, sustained low unemployment and strong job creation initially drove a Canadian recovery. But YTD gains were wiped off many Canadian equity benchmarks in Q4 2018; renewed pessimism over the economy and declining oil prices provided headwinds.
- The S&P/TSX Composite (-8.89%) was led lower by smaller-cap names as the S&P/TSX Completion (-12.85%) declined. Both indices finished 2018 with their worst calendar-year performance since 2008. Canada’s largest companies fared slightly better, but the S&P/TSX 60 (-7.58%) still fell.
- Amid the market gyrations, more than 75% of Canadian active equity managers underperformed their benchmarks across all categories in 2018. This highlights the fact that heightened market volatility does not necessarily lead to outperformance by active managers.
Exhibit 1: The Majority of Active Managers Underperformed in All Categories in 2018
- Canadian Small-/Mid-Cap Equity fund managers found it particularly difficult to navigate 2018’s market turbulence, as 80% of all small- and mid-cap managers lagged the S&P/TSX Completion’s plunge.
- Overall, roughly three in four Canadian Equity managers underperformed the S&P/TSX Composite; the potential to select among Canadian large-cap stocks did not significantly improve relative performance figures.
- 2018 was a tough year for Canadian Dividend & Income Equity funds. After the majority outperformed in 2017, 65.22% lagged the S&P/TSX Canadian Dividend Aristocrats® (-8.29%) in 2018. With long-term Canadian yields remaining below their long-term average, income-seeking investors may want to remember the long-term underperformance of active equity income funds as they formulate strategic asset allocation.
- For the second consecutive year, Canadian Focused Equity funds posted the worst relative performance; 83.12% lagged the blended benchmark, which comprises the S&P/TSX Composite (50%), the S&P 500® (25%), and the S&P EPAC LargeMidCap (25%).