Have active Canadian equity managers earned their keep?

Few large-cap funds outperformed index ETF after fees, Morningstar study finds.

Morningstar Canada 7 May, 2015 | 5:00PM

Editor's note: This article is based on a Morningstar research paper published in April. Co-authors Christopher Davis, director, manager research, Canada, and Michael Keaveney, director, Morningstar Investment Management, Canada, examined how well Canadian investors have been served by active managers of domestic equity funds over the long haul.

A new Morningstar study on the past performance of active managers in the Canadian Equity and Canadian Small/Mid Cap Equity categories gives credence to the argument that investors should favour passive vehicles in more efficient markets and consider active management in less efficient ones.

Covering the 10-year period ended Feb. 28, the study measured differences in risk-adjusted performance between active and passive funds. To do so, it employed a metric known as the information ratio, which weighs funds' excess returns over their benchmarks against the volatility of those returns. Put another way, the information ratio measures whether the returns have been good enough to justify the risks managers took against their benchmarks.

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