Canadian stock markets experienced drastic volatility in the first half of 2020. The S&P/TSX Composite started strong, as January capped a stretch where the index posted positive returns in 7 out of 8 months, subsequently reaching an all-time high on Feb. 20, 2020. As the effects of the COVID-19 pandemic became apparent, the S&P/TSX Composite then fell a dizzying 37.2% in just 22 days, mirroring markets worldwide. A sharp bounce off the lows followed by an uncertain recovery left the index down 7.5% over the first six months of 2020. Smaller-cap names in the S&P/TSX Completion fell 11.8%, lagging the 6.3% decline of the S&P/TSX 60.
Although this volatile period offered ample opportunity for stock-pickers to shine, 88% of Canadian equity funds underperformed their benchmarks over the past year, in line with the 90% that did so over the past decade. This shortfall was not an outlier, as in six of seven categories, a majority of funds fell short of their benchmarks in the past year, and at least two-thirds of funds did so in every category over the past 10 years.
Canadian Equity funds were particularly notable for their level of underperformance. On an asset-weighted basis, Canadian Equity funds returned a dismal 7.9% below the S&P/TSX Composite over the past year, the worst relative performance of any fund category. Canadian Dividend & Income Equity funds provided a rare bright spot for active managers, with 69% outperforming over the past year, while dividend indices considerably lagged the market. In the 12-month period ending June 30, 2020, the broad-market S&P/TSX Composite fell 2.2%, whereas the S&P/TSX Canadian Dividend Aristocrats® lost 10.8%, the worst performance of any fund category benchmark. Over the 10-year window, this 8.6% deficit flipped to a 0.7% annualized outperformance for the S&P/TSX Canadian Dividend Aristocrats, while active fund managers reverted to form, with just 12% able to surpass the benchmark.
For Canadian Small-/Mid-Cap Equity managers, 52% underperformed the S&P/TSX Completion in the last year. Just 31% of Canadian Small-/Mid-Cap Equity funds beat the index for the decade, which was the most favorable performance of any category observed.
Among Canadian Focused Equity funds, 84% lagged the blended benchmark, which comprises the S&P/TSX Composite (50%), the S&P 500reg; (CAD) (25%), and the S&P EPAC LargeMidCap (25%). The fund category performed similarly in the SPIVA Canada Year-End 2019 Scorecard, when 85% underperformed the benchmark. Canadian Focused Equity funds were also notable for having the worst chances of beating the index over the past 10 years, with just 4 of 120 funds (3.3%) surpassing the blended target. Asset allocators punished these funds heavily, as only 40% of funds survived the decade, the worst survivorship of any category.