Active management environment improves in Q3

“The third quarter was a favourable active management environment for large cap managers after they struggled in the first half of the year,” says Kathleen Wylie, head of Canadian equity research at Russell Canada. “Despite the stock market decline in the quarter, more than 50% of large cap managers beat the benchmark, which we view as a favourable quarter for active managers overall.”

She noted that just over one-third of large cap managers actually posted positive returns in the quarter, with the range in returns from the top- to bottom-performing managers fairly wide.

Dividend-focused managers fared better than growth or value managers in the third quarter, with 61% beating the benchmark compared with 58% of growth and 48% of value managers. The median dividend-focused manager return was -0.1% compared with -0.4% for growth and -0.6% for value managers. The biggest range in returns was in the growth universe where the top manager returned 4% and the bottom manager returned -11.4%.

Dividend managers benefited most from the 16.5% decline in gold stocks since they started the third quarter with the largest underweight of 4.2%, compared to value managers, who were 3.4% underweight, and growth managers, who were 1.8% underweight gold, on average.

The fourth quarter is starting on a negative tone, with the S&P/TSX Composite Index on track to post a bigger decline than in the third quarter.

“It’s difficult to tell this early if it will be a favourable environment for large cap managers in the fourth quarter, given the volatility we’re now experiencing,” she says. “It changes day to day, so it could go either way. It’s even harder to predict how styles will perform.”

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