SUMMARY
- The Canadian equity markets rebounded in the first half of 2019, as the S&P/TSX Composite rose by 16.2%. Small caps led the way, with the S&P/TSX Completion (17.2%) slightly outpacing the S&P/TSX 60 (15.9%).
- Active managers were unable to keep pace with the market—the majority of funds underperformed their respective benchmarks in the 12-month period ending June 30, 2019, across all seven categories.
- Over the one-year horizon, more than 85% of Canadian active equity managers underperformed their benchmarks. Managers that focus on the small-cap equity space fared among the worst, as 88% of Canadian Small-/Mid-Cap managers underperformed the S&P/TSX Completion.
- Compared with the previous report (from year-end 2018), fund managers in the three Canadian equity categories fared relatively worse. Dividend & Income Equity fund managers did particularly poorly, with underperformance rising from 65% to 88% as of June 30, 2019.
- International Equity provided the best relative performance out of all seven categories over the 12- month period ending June 30, 2019; 46% of fund managers beat the category benchmark.
- The 10-year performance results demonstrate the difficulty that active managers had in beating their respective benchmarks over the long term. Over 88% of Canadian Equity managers underperformed the S&P/TSX Composite over the 10-year period ending in June 2019. Things were particularly bleak for the Dividend & Income Equity fund category, as no manager was able to outperform the benchmark over the 10-year period.
- Long-term survivorship rates paint a dreary picture—less than half (46%) of all Canadian Equity funds in the eligible universe 10 years ago remained active as of June 2019. Similar figures are seen for the U.S. Equity (48%) and Canadian Focused Equity (35%) categories.
• Beginning with this report, style consistency is computed and shown in Report 2. This is an important metric because style drift can affect asset allocation decisions. For each category, we track how many funds changed their style at any time during each respective measurement period. Style consistency was relatively high for the 12-month period ending June 2019, with the figure being 100% for four of the seven categories; the lowest consistency was Canadian Equity (96%).
- Over the long term (10 years), style consistency was materially low for several categories, including Canadian Small-/Mid-Cap Equity (74%), Canadian Dividend & Income Equity (73%), and Canadian Focused Equity (64%). The other four categories showed consistency figures of 90% or higher.
- Larger funds (by net assts) did relatively better than smaller funds over the one-year period; asset-weighted category returns were relatively higher than the corresponding equal-weighted returns for six of the seven categories.
