While 2015 started on a healthy note for the S&P/TSX Composite Index, a majority of value and dividend investment managers in Canada faced an extra valiant challenge.
Valeant Pharmaceuticals International’s stock price surged 50% in the quarter and accounted for more than half the benchmark index’s 2.6% gain, but Russell Canada’s Active Manager Report finds that only 39% of value and 34% of dividend managers beat the benchmark in the first quarter of 2015. All data cited is gross of fees.
Read: More active managers outperform
Only 13% of value managers and 11% of dividend managers owned the stock at the start of the quarter, which made it challenging for them to beat the benchmark.
And 53% of Canadian large cap managers beat the benchmark in the first quarter, albeit down from 65% in the fourth quarter of 2014. About 35% of large cap managers in Canada held Valeant at the start of 2015.
“We know that the Canadian market is prone to concentration issues,” explains Kathleen Wylie, head of Canadian equity Research at Russell Canada. “We had Nortel back in 1998/1999, and in recent years the large weight of resources, financials and gold stocks in the index has presented challenges for managers at different times.”
Read: Majority of managers didn’t beat benchmark
Valeant is now the latest concentration issue given it is the third-largest stock in the index with a weight of more than 4%. Concentration can make it problematic for active managers to beat the benchmark in certain quarters, especially when one of the largest stocks or sectors in the index surges, she adds.
The report is based on a quarterly survey of roughly 150 institutional money manager products.
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