Active managers shine

Portfolio managers did particularly well last year, beating benchmarks solidly, partly due to gold’s massive decline

By: Paul Brent
March 1, 2014 October 30, 2019
00:00

Supporters of active portfolio management have received some welcome news: 94% of large-cap active portfolio managers beat the S&P/TSX composite index in 2013, continuing a two-year winning streak against the benchmark, according to the latest Active Manager Report from Russell Investments Canada Ltd.

The median return for the year was an “astounding” 19.1%, the report says, more than six percentage points ahead of the S&P/TSX composite index’s return of 13%.

That performance by active portfolio managers, the best in 12 years, was accomplished in large part because the market co-operated with a performance in which eight of 10 sectors outperformed the benchmark. More breadth in market performance generally is good news for portfolio managers; not coincidentally, breadth of performance was the best since 2001. Gold also helped, dropping in value by 44% last year while large-cap managers were underweighted in gold shares by 3.5%.

“Generally, managers did well,” says Kathleen Wylie, head of Canadian equities research with Russell, adding that this news comes at a time “when there are people who have written off active management.”

Wylie expected a big win for large-cap portfolio managers in 2013 because they had beat the index in every quarter of the year – a winning streak that stretches back five quarters into 2012.

“As the year progressed,” says Wylie, “I could see that it was going to be overall a really good year.”

Active portfolio managers ended the year with a bang: 86% of large-cap managers outperformed the benchmark in the fourth quarter, 74% in the third quarter, 95% in the second and 79% in the first quarter. The median large-cap portfolio return was 8.4% in the fourth quarter of 2013, well above the S&P/TSX composite index’s 7.3% return.

The Russell report, which is based on data from 150 Canadian money-manager products, has tracked the performance of large-cap portfolio managers since 1999. The 2013 result, with 94% of managers outperforming the index, is the best result ever. The next best result was in 2001, when 90% of portfolio managers beat the index thanks to the “Nortel effect,” as that tech giant’s stock plunged.

Says Wylie: “Managers just never got fully in[to Nortel’s stock], and that just killed them when Nortel was going up [just 27% of managers beat the index in 1999]; and then, it really helped them for the two years after that.”

Over the past 10 years, an average of 55% of large-cap portfolio managers have beaten the benchmark.

Last year also was a great one for small-cap portfolio managers. The S&P/TSX small-cap index posted a return of 7.6%, but small-cap portfolio managers generated a median return of 27.9%.

Nevertheless, the tailwinds that have helped large-cap portfolio managers over the past two years have shifted midway through the first quarter: just four sectors are ahead of the benchmark. The materials sector is among the top outperformers, with gold stocks up by 26%.