Standard & Poor’s Index Services today released the results of its first study on the performance of indices versus active Canadian funds in bear markets.

The report, which focuses on the period August 2000 to December 2002, seeks to compare the performance of indices versus active mutual funds during a bear market.

According to S&P/ research, only 38.9% of Canadian equity active mutual funds outperformed the S&P/TSX capped composite index during the last bear market period from August 2000 to December 2002.

Active funds in the large cap equity category saw similar results with only 34.4% beating the S&P/TSX 60 capped index. Canadian small cap equity funds fared the worst domestically, with only 30% of active funds outpacing the S&P/TSX smallcap index.

“Conventional wisdom says that active mutual funds perform better than indices during a bear market. 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,” says Jasmit Bhandal, director at S&P’s Index Services. “The report shows that the majority of Canadian equity funds still underperformed their benchmark.”

Over the August 2000 to December 2002 period, the majority of international, global equity, and U.S. equity funds have come in below their index returns for each category (the S&P/Citigroup EPAC PMI, S&P/Citigroup world PMI and S&P 500 indices respectively). Global equity funds fared the best with 45.9% beating the S&P/Citigroup world PMI Index.

Today’s findings are are part of a special edition of S&P’s quarterly produced Indices Versus Active Funds Scorecard (SPIVA) for Canada.

SPIVA scorecards show both asset- and equal-weighted averages and include survivorship bias correction to account for funds that may have merged or been liquidated during the period under study.

Survivorship over August 2000 – December 2002 is 72.2% for Canadian Equity, 96.9% for Canadian Large Cap Equity, 74% for Canadian Small Cap Equity.

The complete SPIVA Bear Market Report for Canada is available on www.spiva.standardandpoors.com.