Fewer active funds posted higher returns than their benchmarks in the third quarter of 2009, according to the latest results for the Standard & Poor’s Indices Versus Active Funds Scorecard for Canada.

The scorecard, released on Monday, shows that between July and September 2009, only 36% of Canadian Equity active funds and 31.8% of active funds in the Canadian Small/Mid Cap Equity category beat the S&P/TSX composite index.

Almost 70% of the Canadian Focused Equity funds that outperformed the blended S&P/TSX Composite Index in Q2 posted returns below the index in Q3. While 61% of U.S. Equity funds were able to outstrip the S&P 500 in Q2, results diminished in Q3 with less than half, 40.3%, posting returns above the index.

As fewer actively managed funds outperform their respective benchmarks, S&P is witnessing growing interest in passive investments, according to Jasmit Bhandal, director at Standard & Poor’s Canada.

“More and more Canadians have shown interest in passive investment and the index funds and ETF products available to them,” said Bhandal.

Data from S&P shows that over longer periods of time, even fewer active funds across all categories are able to outperform their respective benchmarks. In three-year and five-year periods, only 12.1% and 5.9%, respectively, of actively managed Canadian Equity funds have outperformed the S&P/TSX Composite Index.

“Over the longer term, it is pretty consistent that active managers are not able to outperform their benchmarks,” said Bhandal.

She said these results highlight the importance of investors doing research on funds and making themselves aware of the risks.

“Investors need to be aware that there is active risk,” Bhandal said.

“Although active managers can add value over certain periods or in certain categories,” she said, “you have to make sure you do your homework, and that those active fees that you are paying are worthwhile.”

IE