The Canadian market, like many of its counterparts around the world, soared upward during the past year despite the COVID-19 pandemic. The S&P/TSX Composite gained 33.9% for the 12-month period ending on June 30, 2021, and the smaller-cap names of the S&P/TSX Completion did slightly better, with a 35.3% gain.
Unlike many previous reports, where the performance of active funds has been similar across categories, at mid-year 2021 there was a wide spread of outcomes. For example, 60% of Canadian Equity funds and 98% of Canadian Dividend & Income Equity funds fell short of their respective benchmarks over the past 12 months. However, just 15% of Canadian Small-/Mid-Cap Equity and 23% of Canadian Focused Equity funds underperformed over the same timeframe (see Report 1).
Even for the most recent outperformers, however, the longer-term picture remains unfavorable. Canadian Focused Equity funds were the worst-performing category over the past 10 years, with 96% of funds failing to clear their hurdle rate. Canadian Small-/Mid-Cap Equity funds— technically the best-performing category over the past 10 years—had 62% of funds trailing the benchmark.
The level of out- and underperformance also showed wide spreads over the past year. On an equal-weighted basis, Canadian Small-/Mid-Cap Equity funds beat the S&P/TSX Completion by 10.7%. Larger funds tended to do a little worse than smaller funds, as the asset-weighted difference between these active funds and the benchmark narrowed down to 9.0%. On the other hand, Canadian Dividend & Income Equity funds trailed the S&P/TSX Canadian Dividend Aristocrats® Index by 12.9%, with little difference by size (see Reports 3 and 4).
Larger Canadian Equity funds (benchmarked against the S&P/TSX Composite) did better than their smaller counterparts. On an equal-weighted basis, these funds lagged by 1.7%, but on an asset-weighted basis, they actually surpassed the benchmark by 3.8%. Unfortunately, looking back over the past 10 years, these funds trailed the index by roughly 1% per year, regardless of weighting (see Reports 3 and 4).
Funds looking outside of Canada posted solid absolute returns, though they lagged their domestic-oriented peers and broadly failed to add value through active management. U.S. Equity, International Equity, and Global Equity funds posted similar annual returns on an asset-weighted basis of 24.4%, 22.3%, and 22.8%, respectively. However, the majority of these active managers (67%, 58% and 69%, respectively) still trailed their corresponding benchmarks over the past year (see Reports 1 and 4).
The SPIVA Scorecards' accounting for survivorship bias continues to provide a valuable caution for asset allocators. While more than 90% of funds stayed alive over the past year, 54% of all funds in the eligible universe 10 years ago have since been liquidated or merged. Global Equity funds were the most likely to survive after 10 years, with 65% still in business. Canadian Focused Equity funds were the least likely to survive, as just 38% managed to do so (see Report 2).
