Active Funds Not Better In A Bear Market

Conventional wisdom says actively managed mutual funds beat the index during bear markets (and are thus better to hold than index funds). Not so, says a recent study from Standard & Poor’s Index Services.

According to S&P’s research, just 38.9% of actively managed equity funds in Canada outpaced the S&P/TSX Capped Composite Index during the bear market from August 2000 to December 2002. In the U.S, only 29% outpaced the S&P 500.

True, actively managed funds can hold cash balances, shift into defensive stocks, etc. – so there is a presumption they would do better. In fact, the average return earned by active Canadian equity funds does exceed the index during bearish phases.

But this average return “reflects the strong performance of only a few funds,” declares Jasmit Bhandal, director of Standard & Poor’s Index Services. “The majority of Canadian Equity funds still underperformed their benchmark.”

Comments

[SmartETF:]

Has anybody studied S&P's data to see if their active manager database actually includes closet indeexers? A recent study from Yale (over a 23 year time frame) showed only 27.5% of managers are true active managers. I bet if you could extract the closet indexers from the list it would dramatically change the results in favor of the active manager. Also, are we discussing active managers or market timers, not the same thing to me. Lastly, how have they done this year?

2008 Aug 07 02:34 PM

[inthewoods:]

Smart, could you email me info on your firm at droskill AT hotmail DOT com? I've interested in hearing what you guys are up to based on your comments.

2008 Aug 18 04:32 PM