There is fresh evidence that the value of active management is found in market downturns, as the latest Standard & Poor’s Indices Versus Active Funds Scorecard (SPIVA) found that nearly 60% beat the S&P/TSX composite index in the third quarter, but S&P’s Jasmit Bhandal cautions investors against reading too much into the improved numbers.
“It’s true that managers have been able to add value over the last quarter,” she says. “But if you look at all the categories and compare them against the last three quarters, it’s not a consistent trend.”
n Q2, only 35.1% of Canadian equity active managers beat the benchmark, while just 8.2% fared better than the S&P/TSX composite index in Q1.
Bhandal also points to the longer-term numbers, which are quite low, to suggest that the Q3 results are a temporary aberration. The three-year numbers show that active managers have only beaten the benchmark 8.54% of the time, while over five years that figure drops to 7.14%.
It’s not clear why active managers are beating the benchmark right now, says Bhandal, though it’s likely that they chose the right sectors or they’re in cash. As to how the current market conditions are affecting results, Bhandal explains that “volatility is making it difficult for everybody. The flip-flopping amongst various categories between quarters shows that. If we’re taking bets, it’s hard to predict.”
While the majority of active managers are likely happy with the better numbers, those in the small/mid-cap category won’t be celebrating. Only 35.1% of them beat the S&P/TSX completion index, down from 57.7% last quarter.
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That number falls more in line with the index’s one-year return, which is at 29.31%. Three- and five-year figures are not reported.
And, unlike last quarter, when American active managers outperformed their Canadian counterparts, with 51.2% surpassing the benchmark, this quarter only 34.09% of U.S. managers succeeded in that task.
Going forward, Bhandal says she can’t predict how Q4 will unfold, and she doesn’t know why some managers beat the benchmark while a high percentage of others do not.
“The important thing for investors to take away is not that there are active managers who can beat the benchmark, but that it’s hard to find them,” she says. “Identifying who they are—and those managers change over time as well—is the hard part.”
 | Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com |