The majority of actively managed mutual funds in the Canadian and U.S. equity categories did not perform as well as their respective benchmarks, the S&P/TSX composite index and S&P 500 index, in the second quarter of 2005, according to the latest report from Standard & Poor’s.

The Standard & Poor’s Indices Versus Active Funds Scorecard (SPIVA) for Canada shows the S&P/TSX composite index outperformed 80% of actively managed Canadian equity funds through June, while the S&P 500 index, measured in Canadian dollars, outperformed 68% of U.S. equity funds. Actively managed Canadian small cap funds fared best of all in the first six months of 2005, with 68% beating the S&P/TSX small cap Index.

“By controlling for survivorship bias, SPIVA offers investors a clearer picture of how mutual funds are doing in Canada,” says Steve Rive, vice president, Canadian Index Services at Standard and Poor’s. “For example, this allows us to measure ‘active risk.’ Active risk is the risk that the fund you choose today will not beat the index over the period that you plan to hold it. SPIVA shows that active risk in Canadian mutual funds is a very real issue that investors need to be aware of.”

Longer-term results continue to be consistent with past results. Over the past three years, 5.9% of actively managed Canadian equity funds have outperformed the S&P/TSX composite index, 54% of actively managed Canadian small cap funds have outperformed the S&P/TSX small cap index and 19.6% of U.S. equity funds have outperformed the S&P 500 index. Five-year average fund returns show active funds outperforming the S&P/TSX composite index and underperforming the S&P/TSX capped composite, both on an equal- and asset-weighted basis.

The SPIVA methodology is designed to provide an accurate and objective apples-to-apples comparison of funds’ performance versus their appropriate style indices, correcting for factors that have skewed results in previous index-versus-active analyses in the industry. SPIVA scorecards show both asset-weighted and equal-weighted averages, include survivorship bias correction to account for funds that may have merged or been liquidated during the period under study, and show style consistency for each style group across different time horizons.