Mutual Funds Still Struggle to Beat the Markets

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Includes: DIA, QQQ, SPY
by: Market Blog

By David Berman

Standard & Poor’s on Thursday released its full-year scorecard on how many actively managed mutual funds beat their benchmark index in 2009. No surprise here: Just 39.2% of Canadian equity funds beat the S&P/TSX composite index, an underperformance that fits in with other scorecards released by S&P.

At least investors are unlikely to complain too loudly this time around, given that funds generated big returns last year. According to S&P, the equal weighted return of Canadian equity funds was 31.3%, versus a 35.1% return for the index after dividends are included.

Longer-term, though, the results are more discouraging for mutual fund investors. Over three years, only 12.5% of actively managed funds beat the index, and the average annualized return drops to a loss of 2.4%. And over five years, just 7.45% of funds beat the index, with an annualized gain of 4.5%, versus a 7.7% gain for the index.

For Canadian dividend and income equity funds, the results are even worse. In 2009, no actively managed funds beat the benchmark S&P/TSX Canadian dividend aristocrats index, which consists of stocks that have raised their dividends every year for at least five years. Over three years, 3.3% of the actively managed funds beat the index, but the beat rate fall back to zero for the five-year period.

Hey, it’s hard to beat the market.

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