The Canadian active management environment got a boost in the second quarter of 2014 with 41% of large cap managers beating the S&P/TSX Composite Index, a 10% increase from the first quarter, according to a report released by Toronto-based Russell Investments Canada Ltd. on Thursday.
According to the Russell Investments Canadian Active Manager Report, only two of 10 sectors outperformed the benchmark in the second quarter – Energy and Industrials. Large-cap managers did well in this underperforming environment by favourably over or underweighting six of the sectors. For example, most large cap managers were overweight in the Energy and Industrials sectors by almost 2% on average.
“Typically, narrow sector breadth can lead to a difficult environment for investors,” said Kathleen Wylie, head of Canadian equity research, Russell Investments, in a statement. “I was surprised it wasn’t more of a struggle for managers to beat the benchmark.”
Looking more closely at management style, the report found growth managers fared better than defensive dividend and value managers. Fifty-percent of growth managers beat the benchmark in Q2, according to Russell Investments, compared to 34% of value managers and 27% of dividend-focused managers. The report found that growth managers benefitted from a large underweight position in the telecommunication and utilities sectors.
“This was the first time in a year that growth managers have fared better than value and dividend managers,” said Wylie. “Their style was largely out of favour throughout most of the financial crisis with growth managers lagging the more defensive styles in all but five quarters since the third quarter of 2008.”
The report’s findings are based on a quarterly survey of roughly 150 institutional money manager products (all data cited is gross of fees).