Actively managed mutual funds in the Canadian and U.S. equity categories continued to lag their respective benchmarks in 2005, Standard & Poor’s said today. According to the Standard & Poor’s Indices Versus Active Funds Scorecard (SPIVA) for Canada, the S&P/TSX Composite Index outperformed 87.1% of actively managed Canadian equity funds in 2005, while the S&P 500 Index (measured in C$) outperformed 57.8% of U.S. equity funds. Actively managed Canadian small-cap funds have fared better, however, with 63.4% beating the S&P/TSX SmallCap Index in the past year.

“Less than one-third of actively managed Canadian equity funds have outperformed the S&P/TSX Composite Index over the past five years,” said Jasmit Bhandal, director of business development for Standard & Poor’s Canadian Index Services. “In contrast, active managers of Canadian small-cap funds have had a better chance of beating their benchmarks, which is commonly believed to be a result of the relative inefficiency of the market.”

Longer-term results for Canadian equity, small-cap, and U.S. equity funds continue to be consistent with past results. Over the last three years, 8.15% of actively managed Canadian equity funds have outperformed the S&P/TSX Composite Index, 65% of actively managed Canadian small-cap funds have outperformed the S&P/TSX SmallCap Index and 31.9% of U.S. equity funds have outperformed the S&P 500 Index. Five-year average fund returns show active funds underperforming both the S&P/TSX Composite Index and the S&P/TSX Capped Composite Index, both on an equal- and asset-weighted basis.

A key attribute of the SPIVA methodology is its correction for survivorship bias, which can significantly skew results as funds liquidate or merge. Five-year survivorship ranges from 63.3% to 65.2% for the Canadian equity, Canadian small-cap, and U.S. equity fund categories. This suggests that roughly one-third of funds in these three categories has merged or liquidated in the past five years