Defenders of active management often argue that these mutual funds shine when markets get choppy, but that wasn’t the case for Canadian equity managers in 2018, as most managers underperformed in last year’s volatile markets.

According to the latest SPIVA Canada Scorecard report released Monday by S&P Dow Jones Indices, more than 75% of Canadian equity fund managers trailed the S&P/TSX composite index benchmark in 2018 — a year in which volatility surged in the fourth quarter, and the index dropped 8.9% on the year.

The biannual report tracks the performance of actively managed Canadian mutual funds versus that of their benchmarks.

“This highlights the fact that heightened market volatility does not necessarily lead to outperformance by active managers,” the report says.

Small-cap managers particularly struggled, the report finds, with 80% of small- and mid-cap managers lagging the S&P/TSX completion index. This index, which includes the components of the S&P/TSX composite index that are not in the S&P/TSX 60, dropped 12.85% for the year.

The majority (65.2%) of Canadian dividend and income equity funds also underperformed the S&P/TSX Canadian dividend aristocrats index, the report notes.

“With long-term Canadian yields remaining below their long-term average, income-seeking investors may want to remember the long-term underperformance of active equity income funds as they formulate strategic asset allocation,” the report says.

The report also finds that most U.S. equity funds (78.6%) underperformed the S&P 500, which returned 4.3% in Canadian dollar terms (thanks in part to a decline in the loonie against the U.S. dollar).

International equity managers fared somewhat better, with 44.4% of funds beating the S&P EPAC largemidcap benchmark in 2018.

However, the report notes that, over longer time periods, most managers in this asset class are lagging the benchmark.

Indeed, it is exceedingly difficult for active managers to beat any benchmark in the long run.

“More than nine in every 10 funds underperformed their respective benchmark over the 10-year period, and a similar story was evident over the five-year horizon,” the report says.