Active managers believe 2010 will offer an opportune chance to add value above the S&P/TSX benchmark, according to the latest results of the Russell Active Manager Report.

“The view from active managers is that 2010 will generally be more of a stock-picker’s market, which is what we started to observe in the fourth quarter of 2009,” says Kathleen Wylie, senior research analyst at Russell Investments Canada Ltd.

“The improvement in sector breadth that started in the fourth quarter of 2009 appears to be extending into 2010, which will certainly benefit the benchmark-relative performance of active managers,” Wylie adds.

“If correlations of stock returns are lower, this development will make it a better market for picking stocks. As a result, investment managers with skill in selecting stocks will be rewarded.”

According to Wylie, the first month of 2010 has already started off very favourably for large cap Canadian equity investment managers, with 8 out 10 S&P/TSX Composite Index sectors ahead of the benchmark and only the energy and materials sectors lagging.

“If this trend continues, it should be a very good quarter for active managers to beat the S&P/TSX benchmark since large cap managers have their largest underweights to energy and materials. The first quarter also appears to be tilted toward value managers, based on their sector positioning. For instance, value managers have their largest overweights in consumer discretionary and consumer staples and their most significant underweights to resources, particularly materials,” says Wylie.

Active managers looking to build on 2009 momentum

Canadian large cap managers posted their largest returns in over three decades in 2009 — returning 32.8% last year, following a –31.8% return in 2008. However, large cap managers still lagged the S&P/TSX Composite Index by their widest margin since 1999, as the S&P/TSX benchmark returned 35.1%.

Approximately 36% of large cap managers outperformed the S&P/TSX benchmark in the first quarter of 2009, 38% in the second and 41% in the third. By the fourth quarter of 2009, sector breadth improved with seven out of 10 sectors beating the benchmark and 57% of managers outperforming the benchmark.

IE