The Canada Mid-Year 2013 S&P Indices Versus Active Funds (SPIVA®) Scorecard was recently published. The semi-annual report tracks the performance of actively managed Canadian mutual funds, corrected for survivorship bias, and shows equal- and asset-weighted peer averages.
The active versus passive debate
I’ve written about the active versus passive debate in the passive and with this new report, the debate continues to rage on.
There is nothing novel about the index versus active debate. It has been a contentious subject for decades, and as you can see from some of the comments, there are strong opinions on both sides. The SPIVA Canada Scorecard has become a key scorekeeper of this debate.
The SPIVA Scorecard results
If you want the complete report, you can download the PDF below.2013 SPIVA Scorecard (434 downloads)
Here’s the results of the data:
|Active funds that beat the index|
|Fund Category||1 year||3 year||5 year|
|Canadian Small Cap||68.97%||42.86%||25.53%|
Highlights of the data
- Over the past 12 months ended June 30 2013, the returns of most Canadian active managers were higher than the benchmark
- 72.73% of Canadian equity funds outperformed the S&P/TSX Composite Index
- 68.97% of active Canadian small-/mid-cap equity funds beat the S&P/TSX Completion
- 34.48% of active Canadian focused equity category outpaced S&P’s blended index
- Over three- and five-year periods, only 45.65% and 30.36% of actively managed Canadian equity funds outperformed the TSX Composite Index, respectively.
- Over the longer term, such as the five-year investment horizon, we observe the same pattern repeating across all the categories. The majority of active managers underperformed their benchmarks.
- Only 27.27% of international equity managers beat their benchmarks over the past 12 months ended June 30 2013
- Only 13.19% of global equity managers had higher returns than their benchmark
- Over the five-year period, 11.36% active international equity funds were able to beat the benchmarks and only 8.26% of active global equity funds and 2.35% of active U.S. equity funds have outpaced the indicies.
My five cents
Personally, I’ve always said investing is not about perfection but rather about probability, conviction and discipline.
When it comes to the active versus passive debate, this data reaffirms why I have become an advocate of passive investing. I think it’s great that Canadian active managers did well over this particular 1-year period but I strongly believe that performance over a 1 year period is completely random and unpredictable. Back in 2010, the SPIVA scorecard report had only 19.64% of Canadian Active Managers beating the index. In the future, there will continue to be 1 year periods where active managers win and periods when the index wins. It will be impossible in advance to predict which will win.
When it comes to performance comparisons over longer periods of time (3 years and 5 years), the data is more consistently in favour of passive investing. Again, it’s not perfection but the data suggests that there is a higher probability of winning for passive investing over longer periods.
What do you make of all this data?