Research Department


Active Fund Performance in the Developed World

The SPIVA Canada scorecard, a Standard and Poor’s report on the relative performance of active mutual funds relative to their benchmark index, was released a few days ago. For over ten years, this report has documented the underperformance of active management. Less well-know is the fact that the same analysis is published for other major markets around the world. We would like to discuss the results observed in all developed markets, except Japan (the SPIVA Japan report is published in Japanese!).


The majority of active funds underperformed over five years, with the exception of Canadian small and mid cap equity funds, half of which outperformed their benchmark. Overall, this category surpassed the benchmark by 1.71% (2.32% vs. 0.61%). Last year, we were shocked at the extremely poor performance of Canadian dividend and income equity funds. This category fared better in 2015, with 24% (vs. 0% at the end of 2014) of active funds beating the benchmark. Overall, however, the majority of active funds underperformed in six out of seven categories.

Table 1: Percentage of Canadian active funds outperforming over 5 years

Category Benchmark Index % of outperformers
Canadian equity S&P/TSX composite 34%
Canadian small/mid cap equity S&P/TSX completion 50%
Canadian dividend & income equity S&P/TSX Canadian dividend aristocrats 24%
U.S. equity S&P500 in Canadian dollars (CAD) 1%
International equity S&P EPAC LargeMid cap in CAD 7%
Global equity S&P developed LargeMid cap in CAD 6%
Canadian focused equity 50% S&P/TSX Composite. 25% S&P500 in CAD, 25% S&P EPAC LargeMid cap in CAD 7%

Source: Standard & Poor’s


The majority of funds underperformed in most categories over five years, although a few pockets of strength are reported, such as investment-grade bonds, municipal bonds and bank loans. Several categories reported less than 10% of outperformers. Overall, the majority of active funds underperformed in 27 of 32 categories.

Table 2: Percentage of U.S. active funds outperforming over 5 years

Category Benchmark Index % of outperformers
All domestic equity S&P Composite 1500 12%
All large cap S&P 500 16%
All mid cap S&P MidCap 400 13%
All small cap S&P SmallCap 600 10%
All multi cap S&P Composite 1500 11%
Large cap growth S&P 500 growth 13%
Large cap core S&P 500 12%
Large cap value S&P 500 value 18%
Mid cap growth S&P MidCap 400 growth 19%
Mid cap core S&P MidCap 400 23%
Mid cap value S&P MidCap 400 value 30%
Small cap growth S&P SmallCap 600 growth 8%
Small cap core S&P SmallCap 600 9%
Small cap value S&P SmallCap 600 value 8%
Multi cap growth S&P Composite 1500 growth 9%
Multi cap core S&P Composite 1500 9%
Multi cap value S&P Composite 1500 value 23%
Real estate S&P U.S. Real estate investment trusts 17%
Government long bonds Barclays long government 1%
Government intermediate bonds Barclays intermediate government 32%
Government short bonds 1-3 year government 36%
Investment grade long bonds Barclays long government/credit 4%
Investment grade intermediate bonds Barclays intermediate government/credit 58%
Investment grade short bonds 1-3 year government/credit 70%
High yield bonds Barclays high yield bonds 21%
Mortgage backed securities Barclays mortgage back securities 35%
Global income Barclays global aggregate 49%
Emerging market debt Barclays emerging markets 6%
Loan participation S&P/LSTA leveraged loan 100 58%
General municipal debt S&P Municipal bond 57%
California municipal debt S&P Municipal bond - California 58%
New York municipal debt S&P Municipal bond - New York 38%

Source: Standard & Poor’s


Only the U.K. large cap / mid cap category included a majority of outperforming active funds (at 54%), although several active managers managed to show more than 40% of outperformers. But overall, active funds underperformed in 22 of 23 categories.

Table 3: Percentage of European active funds outperforming over 5 years

Category Benchmark Index % of outperformers
Euro denominated
Europe equity S&P Europe 350 19%
Eurozone equity S&P Eurozone BMI 12%
Nordic equity S&P Nordic BMI 29%
Global equity S&P Global 1200 4%
Emerging market equity S&P/IFCI 11%
U.S. equity S&P 500 3%
France equity S&P France 17%
Germany equity S&P Germany 28%
Italy equity S&P Italy 48%
Spain equity S&P Spain 31%
Netherlands equity S&P Netherlands 0%
GBP denominated
Europe equity S&P Europe 350 42%
Europe ex. U.K. S&P Europe ex-U.K. BMI 40%
U.K. S&P United Kingdom BMI 47%
U.K. large/mid cap S&P United Kingdom LargeMidCap 54%
U.K. small cap S&P United Kingdom SmallCap 22%
Global equity S&P Global 1200 10%
Emerging market equity S&P/IFCI 26%
U.S. equity S&P 500 5%
Other European currencies
Denmark equity S&P Denmark 12%
Poland equity S&P Poland 42%
Switzerland equity S&P Switzerland 5%
Sweden equity S&P Sweden 24%

Source: Standard & Poor’s


Australian mid & small equity posted the most impressive performance of this review, with a strong 71% of active funds outperforming the benchmark. Furthermore, on an asset-weighted basis, active funds in this category outperformed the benchmark by over 5% (7.84% vs. 2.48%). Nevertheless, overall, a majority of active funds underperformed in four of five categories.

Table 4: Percentage of Australian active funds outperforming over 5 years

Category Benchmark Index % of outperformers
Australian equity general S&P/ASX 200 33%
Australian equity mid & small cap S&P/ASX mid-small cap 71%
International equity S&P developed ex-Australia LargeMid cap 12%
Australian bonds S&P/ASX fixed interest 0+ 13%
Australian equity A-REIT S&P/ASX 200 A-REIT 15%

Source: Standard & Poor’s


Jointly for Canada, the U.S., Europe and Australia, most active funds underperformed over the last five years, in 59 of 67 categories. Investors who opt for active funds face an 88% likelihood of underperformance. When reading these tables, the temptation may be great to focus on the rare asset classes where active management has done better. However, these winning categories change from time to time. Furthermore, some of these positive performances may be attributable to manager drift: a manager investing outside its mandated asset class. An outperformance driven by manager drift is generally a random result and should not be expected to be repeated in the future.

Overall, in the race for long-term performance, evidence shows that passive funds greatly surpass active. Investors are increasingly coming to understand this, which is why passive funds have steadily increased their market share over the years.

By: Raymond Kerzérho | 0 comments