Russell Active Manager Report Highlights
74% of growth managers beat S&P/TSX benchmark compared to 45% of value
52% of large cap managers beat S&P/TSX benchmark
Active managers off to a strong start in 2011
TORONTO, Feb. 2 /CNW/ - According to new data from the Russell Active
Manager Report, Canadian large cap growth managers in Canada gained
11.1% last quarter, their highest return since the first quarter of
2009. That was well ahead of the S&P/TSX Composite Index's return of
9.4% during the same period and ahead of the median value manager's
return of 9.1%.
"The difference in performance between growth and value managers last
quarter was also the largest since the second quarter of 2008," says
Kathleen Wylie, Senior Research Analyst at Russell Investments Canada
Limited (Russell), who has interviewed and evaluated hundreds of
investment managers during her career.
"Growth managers were more favourably positioned in 9 out of 10 S&P/TSX
sectors. Energy and Materials were the top-contributing sectors.
Growth managers are slightly overweight Energy and have less of an
underweight in Materials compared to value managers."
In terms of stock selection, Canadian Natural Resources and Teck
Resources were more widely held by growth managers and at larger
weights compared to value managers. Canadian Natural Resources gained
25% and Teck Resources rose 47% in the fourth quarter of 2010. Growth
managers were also helped by owning less Encana and Bank of Montreal in
the quarter, which were among the largest negative contributors to the
Index return and were more widely held by value managers.
More Large Cap Managers Beat the Benchmark
Overall, 52% of large cap managers in Canada were able to beat the
benchmark in the fourth quarter of 2010, up notably from only 34% in
the third quarter and 37% in the second quarter.
"The 52% is in line with the 10-year average. However, it's worth noting
that without the underperformance of the dividend managers who
struggled significantly in the quarter, the number would have jumped to
62% so we can conclude that it was generally a good quarter for active
managers," says Wylie.
"I'm surprised that large cap managers did as well as they did given the
strength in the Materials and Energy sectors and narrow sector breadth
overall. Large cap managers are roughly 6% underweight Materials and
2% underweight Energy on average and typically when those two sectors
are the top-performing sectors, managers find it a challenge to beat
the benchmark, particularly when there is narrow sector breadth.
Clearly, even though their sector bets were not rewarded, stock-picking
was a driver of individual investment manager returns in the fourth
quarter, which is what we expect in the long run."
The median large cap manager's return was 9.6%, slightly ahead of the
benchmark return of 9.4%. The difference between the top-performing
and the bottom-performing manager return was over 13%, the widest since
the second quarter of 2009 but still below the historical average of
"The investment managers I met with recently indicated it was a more of
a stock-pickers market for active managers last quarter. They expect
the stock-pickers market to extend into 2011," says Wylie.
"If correlations of stocks remain low and company fundamentals continue
to be rewarded as we expect, investment managers with skill in
stock-picking and portfolio construction should be able to add more
value so we expect the difference between the top- and
bottom-performing managers to continue to widen."
2011 Starting On a Positive Note
2011 appears to be kicking off on a positive note for the S&P/TSX
Composite Index with strong sector breadth and the Materials sector
lagging the benchmark.
"Since large cap managers in Canada have their largest underweight to
Materials, any underperformance of those stocks will help them beat the
benchmark," says Wylie.
The underperformance of gold stocks is also positive for large cap
managers in terms of benchmark relative performance. In the early
part of January, gold stocks fell 13% - which helps active managers,
who are roughly 5% underweight the stocks on average.
"Large cap managers have their largest overweights in Consumer
Discretionary, Industrials and Information Technology stocks so if the
strength in those sectors continues, that should help large cap
managers' benchmark relative performance," says Wylie.
"Early indications are that the value style of investing might be more
rewarded in the first quarter of 2011 with value managers more
favourably positioned in 8 out of 10 sectors compared to growth
managers based on sector performance so far in January."
Wylie thinks the performance of the top three most heavily weighted
S&P/TSX Composite (Energy, Materials and Financials) sectors will
determine which style will be favoured since the positioning of those
sectors is notably different for value and growth managers.
"Value managers are underweight Energy while growth managers have a
slight overweight and growth managers are underweight Financials while
value managers are overweight. Value managers have a larger
underweight to Materials, particularly gold, compared to growth
managers," says Wylie.
"There's a perception that there's no style in Canada because most
managers hold the big banks. However, that's clearly not the case when
you dig down into the positioning of value and growth managers'
portfolios and compare their quarterly performance. If you look back
over the last 20 years, there is no significant difference in
performance between the two styles but over shorter time periods, there
have some extreme differences in performance and extended periods where
one style will dominate. That's why it's important to have a
multi-style approach to investing so that you can diversify your
portfolio, reduce risk, and weather the swings in the markets."
For access to the full Russell Active Manager Report, please contact
Thien Huynh at 416-640-2529.
About Russell Investments
Founded in 1936, Russell Investments is a global financial services firm
that serves institutional investors, financial advisers and individuals
in more than 40 countries. The firm has $140 billion in assets under
management (as of 06/30/10) in its mutual funds, retirement products,
and institutional funds.
Russell Canada was recently named the #1 fastest growing money manager
in Benefits Canada's 2010 Top 40 Money Managers Report. For more information about how Russell helps to improve financial
security for people, visit us at www.russell.com/ca.
SOURCE Russell Investments Canada Limited
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