Canadian equity investment managers faced a more challenging investing environment in the second quarter, with only 53% of large cap equity managers beating the S&P/TSX Composite Index’s return.
According to Russell Investments Canada’s 2nd Quarter 2007 Active Management report, that was down from 65% in the first quarter, which was the highest proportion in almost three years.
“However, we’re half-way through the year and I’m still more encouraged by the active management environment now than I have been in the last couple of years when the market was dominated by resource stocks,” says Kathleen Wylie, the firm’s senior research analyst.
On average, less than 50% of large cap Canadian equity managers in Canada beat the benchmark in 2005 and 2006.
The median large cap manager return was just ahead of the benchmark with a 6.4% return compared to the S&P/TSX Composite return of 6.3%.
Approximately 120 investment managers in the Russell report are institutional rather than mutual fund managers, with the key difference that mutual fund managers may hold more cash and have an allocation to foreign equities that can be quite significant at times.
Large cap managers generally were helped by being overweight in the three top-performing sectors: telecommunications, information technology and industrials. However, they were hurt by being underweight the energy and materials sectors, which both beat the benchmark return in the quarter.
Six out of 10 sectors outperformed the benchmark in the second quarter, up from five in the first quarter and only three in the fourth quarter of 2006. The greater breadth likely helped investment managers to some extent.
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