If you’re evaluating active Canadian equity funds, pay special attention to their current exposure to energy and materials stocks. It might help explain their performance.
Morningstar’s new Canadian Conundrum report, available here, evaluates the historical return of actively managed Canadian equity funds since the category’s last rework in June 2007. Its findings were twofold: The Canadian stock market is tough to beat even before fees are considered, and most active strategies held persistent tilts away from commodity sectors (energy and materials) toward consumer sectors (discretionary and staples). Such tilts could explain fluctuating short-term success for active management.
It’s Tough to Beat an Index
On a 10-year rolling basis, most Canadian equity funds failed to beat the Morningstar Canada Index before fees. Even a 1% fee cut the chances of outperformance in half. Nearly a third of Canadian equity strategies beat the…
