Before Fees, Large Cap Managers Are Slightly Ahead of Indices

By Andrew Rickard | February 11 2015 08:36AM

According to Russell Canada's most recent Active Manager Report, 65% of Canadian large cap managers beat the S&P/TSX Composite Index in the fourth quarter last year. Gross of fees the median manager return in 2014 was 11.3%, which is slightly higher than the S&P/TSX Composite Index return of 10.6%. The report notes that over the last ten years, 57% of large cap managers have beaten the benchmark. However, gross of fees and using annual returns, the median manager return was only 80 basis points ahead of the index.

Kathleen Wylie, head of Canadian equity research at Russell Canada, points out that energy stocks played a key role during the final months of 2014. The energy business accounted for 25% of the index weight at the beginning of the quarter and fell by 16% during the period, dragging down performance. “While investment managers were underweight the energy sector on average, those that were overweight generally struggled to beat the benchmark in the quarter, in some cases significantly underperforming the benchmark,” she says. “Only a handful of stocks in the energy sector posted positive returns in the quarter, leaving very few places to hide.”

As for what 2015 has in store, Ms. Wylie says it is too early to tell how active managers are performing. “Gold stocks were strong in January, up nearly 30%, which would have hurt large cap managers who are underweight on average,” she comments. “Growth managers are likely outperforming value and dividend managers given their smaller underweight to gold stocks.”