Actively managed mutual funds in the Canadian and U.S. equity categories lagged their benchmarks in the first three quarters of 2005, Standard & Poor’s said today.

According to the Standard & Poor’s Indices Versus Active Funds Scorecard (SPIVA) for Canada, the S&P/TSX composite index outperformed 86.6% of actively managed Canadian equity funds through September, while the S&P 500 index (measured in Canadian dollars) outperformed 62.4% of U.S. equity funds. However, actively managed Canadian small-cap funds have fared better, with 67.5% beating the S&P/TSX small-cap index in the past year.

“Because SPIVA compares the performance of actively managed Canadian mutual funds versus Standard & Poor’s indices in their respective categories, it allows us to measure ‘active risk,’ something investors in Canadian mutual funds definitely need to be aware of,” said said Steve Rive, vp, Canadian index services at Standard and Poor’s.

Longer-term results continue to be consistent with past results. Over the last three years, 6.4% of actively managed Canadian equity funds have outperformed the S&P/TSX composite, 59% of actively managed Canadian small-cap funds have outperformed the S&P/TSX small-cap Index, and 23.4% of U.S. equity funds have outperformed the S&P 500. Five-year average fund returns show active funds outperforming the S&P/TSX composite and underperforming the S&P/TSX capped composite, both on an equal- and asset- weighted basis.

A key attribute of the SPIVA methodology is its correction for survivorship bias, which can significantly skew results as funds liquidate or merge. Five-year survivorship ranges from 63.6% to 65.3% for the Canadian equity, Canadian small cap, and U.S. equity fund categories. This suggests that roughly one-third of funds in these three categories has merged or liquidated in the past five years.