Did your mutual fund outrank most others? Don't count on it to continue, S&P says
Very few Canadian actively-managed funds that deliver top-tier performance in one year have been able to maintain that outcome, according to data from S&P Dow Jones Indices.
S&P's Persistence Scorecard tracks actively-managed funds' performance relative to their peers over consecutive years, as well as the funds' ability to consistently beat a benchmark for their category. The latest report, for the year ending December 2024, shows that of 169 total funds that ranked in the top 25 per cent in their categories in 2020, only two managed to stay in that upper quartile for the next four years.
The results show that 'regardless of asset class or style focus, active management outperformance tends to be relatively short-lived, with few funds consistently outranking their peers,' the report says.
The 2024 result is a slight improvement on the previous year, in which no funds in the top quartile in 2019 managed to stay in that tier for the next four years. The Persistence Scorecard is a companion to the S&P Indices Versus Active (SPIVA) Canada scorecard, which compares active fund managers' performance to benchmark indexes.
For the 2024 results looking at performance over three consecutive years, only two of the eight Canadian small/mid-cap equity funds that were in the top 25 per cent in that category for 2022 were able to maintain that tier in 2023 and 2024 — the best outcome of the seven fund categories. No actively-managed U.S. equity funds (based in Canada) were able to maintain their tier over that period.
For funds that beat their category benchmarks in 2022, persistence in the years after was also minimal. In 2022, 32 of 54 Canadian dividend and income equity funds beat the S&P/TSX Canadian Dividend Aristocrats Index in 2022 — or 59 per cent. Just one of those beat the benchmark in 2023, and was also able to do so in 2024.
The numbers are similar in other fund categories, with just one or two of dozens beating the benchmark in three consecutive years, except in global equity and U.S. equity funds, where no funds outperformed for three years straight.
Over a five-year period, maintaining a top-quartile position was even more difficult. Of the 15 Canadian dividend and income equity funds in the top 25 per cent in 2020, only two remained in the top quartile for the next four years. No funds in other categories were able to keep their top-quartile status.
Using more forgiving terms, looking at funds that finished in the top 50 per cent offers some more positive results. Depending on category, between 16 and 32 per cent of funds managed to stay among the top half of similar funds in 2022, 2023 and 2024. On a five-year basis, however, those proportions fall. Of the 29 Canadian dividend and income equity funds ranked in the top half in 2020, only four were able to stay in that tier in 2021, 2022, 2023 and 2024 — at 13.79 per cent of the funds, the best outcome of any category. Just under 10 per cent of U.S. equity funds, just over four per cent of global equity funds and three per cent of Canadian equity and Canadian-focused equity funds were able to maintain top-half ranking for those five years. No Canadian small/mid-cap equity or international equity funds were able to do so.
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
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