2019 was an excellent year across global equity markets, and Canadian equities were no exception. Following a selloff in the fourth quarter of 2018, the S&P/TSX Composite rebounded 22.9% in 2019, posting positive returns in 10 of the 12 months. Smaller-cap names in the S&P/TSX Completion gained 26.1%, outpacing the 21.9% return of the S&P/TSX 60.
The S&P/TSX Composite posted its highest annual return since 2009, capping a decade-long run that saw a total gain of 94.9%. Amid this historic bull market, however, 92% of Canadian Equity funds underperformed their benchmark in 2019, and 86% underperformed over the decade. This deficit was not an outlier, as a majority of funds underperformed across all categories for 2019. Canadian Dividend & Income Equity managers fared the worst in 2019; only 2% of funds surpassed the S&P/TSX Canadian Dividend Aristocrats&.
Beyond their 2019 showing, Canadian Dividend & Income Equity funds also had a poor decade, with only 4% managing to beat the index. Surprisingly, this category showed the highest 10-year survivorship rate, at just shy of 70%.
For Canadian Small-/Mid-Cap Equity managers, 84% underperformed the S&P/TSX Completion in 2019, with the average fund returning 18.6% on an equal-weighted basis, a full 7.5% lower than the benchmark. Larger funds fared better than their smaller peers, as the average asset-weighted return was improved, at 20.7%. For the decade, just 30% of Canadian Small-/Mid-Cap Equity funds beat the index, which was the most favorable performance of any category observed.
Funds with a more international flavor did somewhat better in 2019 than their Canada-only counterparts, in a year where the Canadian dollar strengthened 5.3% versus the U.S. dollar and 7.3% versus the euro. In International Equity funds, 57% underperformed the S&P EPAC LargeMidCap, although the category managed to exceed the benchmark by 0.30% on an equal-weighted basis and 1.70% on an asset-weighted basis. Longer-term results continued to disappoint, however, as 85% of International Equity funds underperformed over the decade and 61% survived the entire period.
In 2019, 76% of Global Equity and 79% of U.S. Equity funds failed to match the S&P Developed LargeMidCap and S&P 500® (CAD), respectively. In addition, these categories had the poorest long-term relative performance, as a staggering 97% of Global Equity and 98% of U.S. Equity funds underperformed over the past 10 years. While the S&P 500 (CAD) returned 16% per year over the decade, the highest of any category, U.S. Equity funds underachieved by the largest amount: more than four percentage points lower on an equal weighted basis.
For Canadian Focused Equity funds, 85% lagged the blended benchmark, which comprises the S&P/TSX Composite (50%), the S&P 500 (CAD) (25%), and the S&P EPAC LargeMidCap (25%). This number was little changed from 2018, when 83% underperformed. However, after two consecutive years of posting the worst relative performance, funds in this category were in the middle of the pack for 2019. Canadian Focused Equity funds had little to brag about for the 2010s, as 96% fell short of the target. Asset allocators punished these funds heavily, with only 36% of funds at the start of the decade still around by the end.
Larger funds in Canada tended to outperform their smaller counterparts, as across the seven fund categories and four time horizons studied, 23 of the 28 results showed higher asset-weighted returns.
The SPIVA Scorecards’ accounting for survivorship bias continues to provide a valuable caution for asset allocators. While the numbers improved from 2018, 52% all funds in the eligible universe 10 years ago have since been liquidated or merged. Even using a five-year window, no category saw more than three out of every four funds survive.