Our widely followed SPIVA® Canada Scorecard has consistently shown that most Canadian active funds underperform their benchmarks most of the time. However, if a manager beats a benchmark, how do we know whether the result is a product of genuine skill or merely of good luck? Genuine skill is likely to persist, while luck is random and can soon dissipate.
The Canada Persistence Scorecard attempts to distinguish luck from skill by measuring the consistency of active managers' success. It shows that regardless of asset class or style focus, active management outperformance is typically short lived, with few funds consistently outranking their peers.
For example, many top-quartile funds over the 12-month period ending June 2019 were able to repeat their performance over the next year, led by the 60% of Canadian Focused Equity funds that did just that. But by June 2021, the crosscurrents of the pandemic and recovery blew even those high flyers off course, with just 6.7% staying in the top quartile. In fact, in four of the seven categories tracked, no funds remained in the top quartile annually from June 2019 through June 2021 (see Report 1).
