New research from Standard & Poor’s shows that most Canadian fund managers don’t outperform stock indices over time.

S&P announced today that it has launched its Standard & Poor’s Indices Versus Active Funds Scorecard (SPIVA) for Canadian mutual funds. The SPIVA Scorecard for Canada will provide quarterly updates on the performance of actively managed mutual funds versus their relevant benchmarks in Canada.

SPIVA Canada results show that over the last five years 35.4% of actively managed Canadian mutual funds in the Canadian equity category have outperformed the S&P/TSX Composite Index, 34.3% of actively managed mutual funds in the Canadian small cap category have outperformed the S&P/TSX SmallCap Index, and 25.8% of actively managed mutual funds in the U.S. equity category have outperformed the S&P 500 Index. Over both three- and five-year horizons, benchmark index returns are higher than asset- and equal-weighted average returns of active funds in these three categories.

Over the last year, SPIVA shows that 17.5% of actively managed Canadian equity mutual funds have outperformed the S&P/TSX Composite Index, while 25.3% of U.S. equity mutual funds have outperformed the S&P 500 Index. However, actively managed Canadian small cap mutual funds have fared much better, with 71.4% beating the S&P/TSX SmallCap Index.

“Over longer periods of time, such as three or five years, the SPIVA scorecard shows a majority of Canadian active mutual funds being outpaced by indices,” adds Srikant Dash, index strategist at Standard & Poor’s. “This is consistent with our observations from similar studies in the U.S. and Japan.”

SPIVA scorecards correct for survivorship bias, provide an “apples-to-apples” comparison of a fund’s return versus that of its appropriate category benchmark, and show both equal- and asset-weighted average returns. Survivorship bias can significantly skew results as funds liquidate or merge. The five-year survivorship is 71.5%, 67.7% and 70.1% for Canadian equity, U.S. equity and Canadian small-cap mutual fund categories, respectively. For example, only 71.5% of the mutual funds offered five years ago in the Canadian equity category in Canada remained at the end of the period- the other 28.5% were either wound up or merged with other funds.

The complete third quarter SPIVA Canada scorecard, including SPIVA U.S. and SPIVA Japan, are available on www.spiva.standardandpoors.com

SPIVA scorecard
http://www.spiva.satandardandpoors.com