The S&P/TSX Composite posted 25.1% in 2021, its best return in the past 10 years. The S&P/TSX Canadian Dividend Aristocrats® and the S&P 500® (CAD) also garnered significant returns of 26.0% and 27.6%, respectively.
In 2021, 67% of Canadian Equity funds underperformed their benchmark. Consistent with previous evidence over 10-year time frames, a majority of active managers in every fund category lagged their benchmarks, providing a compelling case for passive investing.
U.S. Equity funds were particularly notable for their level of underperformance. On an equal-weighted basis, U.S. Equity funds underperformed the S&P 500 (CAD) by 5.9% over the past year, the worst relative performance of any fund category.
U.S. Equity funds posted a 20.2% gain on an asset-weighted basis, starkly lower than the 27.6% return for the S&P 500 (CAD), the best-performing benchmark. U.S. equities have offered the best returns over the past decade, with the S&P 500 (CAD) gaining 15.1% annualized, yet active funds were unable to keep up: 90% fell short, by an average of 4% per year on an equal-weighted basis.
Canadian Dividend & Income Equity funds posted the highest returns over the past year across funds, with a 25.7% return on an asset-weighted basis. However, 65% of funds in this category still lagged their benchmark.
The smaller-cap names of the S&P/TSX Completion Index finished 2021 up 14.9%, underperforming the Canadian Small-/Mid-Cap Equity funds, as just 13% failed to beat the S&P/TSX Completion Index. Less triumphant, but recently edging closer to parity, 59% and 57% of funds in this category fell short against their benchmark over the 5- and 10-year periods, respectively.
Despite outperforming their benchmark by 1.8% for 2021, Canadian Focused Equity funds were also notable for having the worst chances of beating the index over the 10-year period, with just 6 of 128 funds (4.7%) surpassing the blended target. Only 43% of these funds survived the decade, the worst survivorship of any category.
International Equity funds did slightly worse on a relative basis over the past six months, with 67% underperforming the benchmark, up from 58% at mid-year 2021. Global Equity funds also added little credence to the track record of active management, with 83% underperforming the 20.4% gain of the S&P Developed LargeMidCap (CAD).
Taking a look through a size lens, larger funds in Canada continued to outperform their smaller counterparts as 17, down from 22 at mid-year 2021, of the 28 results showed higher asset-weighted returns across the seven fund categories and four time horizons studied.
The SPIVA Scorecards' accounting for survivorship bias continues to provide a valuable caution for asset allocators, as 40% of all funds in the eligible universe 10 years ago have since been liquidated or merged.