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Active funds weaker over long term: S&P


Active fund managers offer little in the way of long-term value, according to a report by Standard & Poor's, but they do seem to have a knack for netting shorter-term gains.

Only 16.7 per cent of active funds beat their benchmark over three years, and the number slips to 7.6 per cent over five years. The numbers are much better over a one-year period - with 54.6 per cent beating their index.

"Over shorter time periods, we see active funds adding value, but over longer time periods, active fund outperformance is a rare observance," said Jasmit Bhandal, a director at S&P.

"Investors face the hurdle of finding this extraordinary fund, and then have to hope that it will continue to repeat this performance."

For the first half of the year, only 34.5 per cent of Canadian equity funds that are actively managed outperformed the S&P/TSX composite index. However, 62 per cent of actively managed small and mid-cap funds outperformed their benchmark S&P/TSX completion index.

Standard & Poor's annual "Indices Versus Active Funds for Canada" report, released Tuesday, indicated that only 43.8 per cent of Canadian equity funds available five years ago are still on the market - with the majority falling to either liquidation or mergers.

Only 39.8 per cent of U.S. equity funds hung on, while 58.1 per cent of international equity and 41.3 per cent of global equity funds made it through.


Equity fund returns

Per cent of active funds outperforming the index at the end of the second quarter of 2009.

Category Comparison Index Last Quarter Year To Date One Year Three Years Five Years
Canadian Equity S&P/TSX Composite Index TR 33.9 34.6 54.6 16.7 7.6
Canadian Equity S&P/TSX Capped Composite Index TR 33.9 34.6 54.6 16.7 7.6
Cdn Small/ Mid Cap Equity S&P/TSX Completion Index TR 42.9 62.0 37.7 n/a n/a
Cdn Dividend & Income Equity S&P/TSX Cdn Div. Aristocrats Index TR 0.0 0.0 3.0 7.7 0.0
U.S. Equity S&P 500 TR Index C$ 61.0 62.3 27.1 19.6 10.6
International Equity S&P EPAC LargeMidCap Index TR C$ 26.1 63.0 37.5 25.5 8.1
Global Equity S&P Developed Large MidCap Index TR C$ 44.3 69.3 36.2 21.6 16.4
Cdn Focused Equity 50% S&P/TSX Composite Index TR* 61.5 71.4 44.1 41.7 54.2
TR is Total Return
* also includes 25% S&P 500 Index TR C$ + 25% S&P EPAC LargeMidCap Index TR C$
Note: There has been no deduction of fund expenses from index returns.
Source: Standard & Poor's, Fundata. All data ending June 30, 2009. CIFSC categorizations.

© 2007 The Globe and Mail. All rights reserved.

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