The way the Canadian stock market is looking, mutual fund managers are going to have to confirm the widespread belief that they provide a real service to investors during bear markets. That is, when indexes are declining, fund managers have the skill to avoid the worst-performing stocks.
They have their work cut out for them. Yesterday, Standard & Poor's released a study on the performance of Canadian actively managed funds next to their benchmark index, the S&P/TSX composite index, between August, 2000, and December, 2002 - the last prolonged bear market.
S&P found that only 38.9 per cent of actively managed funds outperformed the capped composite index. Among large-cap funds, 34.4 per cent of funds beat the S&P/TSX 60 capped index. Among small-cap funds, just 30 per cent beat the S&P/TSX small-cap index.
"Conventional wisdom says that active mutual funds perform better than indices during a bear market," said Jasmit Bhandal, director at Standard & Poor's Index Services, in a note. "While we found that the average return of active Canadian equity mutual funds was better, this reflects the strong performance of only a few funds."
See David Berman's Market Blog at ReportonBusiness.com
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