With Canadian equities breaking out in the fourth quarter, active managers took outperformed the S&P/TSX composite index, according to a report released today by Russell Investment Group.

“There was good breadth in the market as nine of 10 sectors and over 70% of all stocks in the S&P/TSX composite index posted positive returns. This made it easier for active managers to outperform the market,” says Kathleen Wylie, a manager research analyst at Russell Investment Group in Toronto. “Large cap managers made hay in the fourth quarter and beat the broad market, but small cap was the place to be.”

The median large cap Canadian equity manager posted a return of 7.8% (all returns before fees), roughly 0.6% ahead of the S&P/TSX Composite’s return of 7.2%. According to the Russell Investment Group Canadian Equity Manager Universe, slightly more than half of the large cap managers beat the Composite return in the quarter, well below the 85% observed only two quarters before.

The environment for small cap managers was significantly better with over 90% of the managers in the Russell universe beating the S&P/TSX Small Cap Index’s return of 6.9%. The median return of all small cap managers was 11.0%, well ahead of the broad market indices.

“Manager selection is critical in all areas but especially so in small cap as the range in returns from the top-performing manager to the bottom-performing manager continued to be wide at 18.8%, the widest in 2004,” adds Wylie.

For the third quarter in a row value managers fared better than growth managers with a median return of 8.4% compared to the 7.4% increase for the growth universe. That said; the environment was only slightly more positive for value managers in the fourth quarter with 60% beating the index compared to 53% for growth managers. This difference was not as extreme when compared to the third quarter when 70% of the value managers beat the benchmark compared to just 18% for growth managers.