TORONTO, April 30 /CNW/ - According to Russell Investments Canada's 1st
Quarter 2007 Active Management report, the year began on a positive note for
active Canadian equity managers, who found it a more favourable environment
for investing compared to the last couple of years.
"In the first quarter of 2007, 65 percent of large cap equity managers in
Canada outperformed the S&P/TSX Composite Index, which is the highest
proportion in almost three years. That was up from the fourth quarter of 2006
when just 51 percent beat the benchmark," said Kathleen Wylie, Senior Research
Analyst, Russell Investments Canada.
The median large cap manager posted a return of 3.0 percent, which was
ahead of the S&P/TSX Composite return of 2.6 percent in the quarter.
"We started this survey of over 120 active, Canadian fund managers over
three years ago. At Russell we monitor all managers due to our multi-
manager(TM) approach to investing and use this information to provide details
on ongoing results to our own internal fund managers," added Wylie.
There was more breadth in the market in the first quarter with five of
the 10 sectors outperforming the Index and a narrower gap between the best and
worst performing sectors.
"Telecommunication Services had the highest return, up 7.9 percent
compared to the lowest returning sector, Utilities, which fell 5.8 percent in
the first quarter," said Wylie. "Active managers generally were positioned
favourably in both those sectors with the average large cap manager slightly
overweight Telecommunications and underweight Utilities."
At the individual stock level there was more breadth with 50 percent of
the names in the S&P/TSX Composite beating the Index return of 2.6 percent in
the first quarter but with less dispersion between stock returns; this made it
more challenging for active managers to stand out, relative to their peers, in
the quarter. The result was a notably tighter range between the top-performing
large cap investment manager and the bottom-performing investment manager. The
7.6 percent difference was the lowest in four years.
Although the overall environment was better than recent periods, there
still continued to be headwinds for active managers:
- The high level of mergers and acquisitions activity which hit record
levels in late 2006.
- High levels of liquidity in the economy generally have fuelled a
surge in private equity interest in some lower quality companies
which are not typically widely held by large cap investment managers.
Value Beat Growth
In terms of investment style, the environment was more conducive for
value managers, with 71 percent of them outperforming the benchmark in the
first quarter of 2007, compared to 61 percent of growth managers. That was a
reversal from the fourth quarter of 2006 when the majority of growth managers
beat the benchmark compared to only 27 percent of value managers. In the first
quarter of 2007, value managers were helped by more positive positioning
compared to growth managers in three of the top four performing sectors;
Industrials, Consumer Discretionary and Financials. It also helped that value
managers were more underweight the heavily-weighted Energy sector, which
lagged the benchmark return.
Added Wylie, "Generally, value managers have struggled more than growth
managers in the last couple of years with the strength in resources. In 2005,
value managers tended to be more underweight the top-performing Energy sector
and similarly in 2006, they were underweight Materials on average."
Small Cap beat Large Cap
Small cap stocks were more rewarded in the first quarter of 2007 compared
to the broader S&P/TSX Composite. The S&P/TSX Small Cap Index posted a return
of 6 percent in the first quarter of 2007 compared to 2.6 percent for the
Composite. The median small cap manager return was also 6 percent, which was
double the median large cap manager return.
"Similar to large cap space, the range in returns between the top- and
bottom-performing small cap managers was narrower compared to history," said
Wylie. "Generally, during the resource run of the last two years, small cap
stocks have been more rewarded which has helped small cap investment managers
to outperform large cap."
Russell Investment Group is a global leader in multi-manager investing
and one of the world leaders in investment consulting. Russell advises
institutional clients with total assets of over C$2.0 trillion and manages
approximately C$228 billion in its investment management business, which
employs Russell's MULTI ASSET MULTI STYLE MULTI MANAGER(TM) investment
Russell supports its global operations by monitoring more than 4,000
manager firms and their 8,600 products.
The company serves institutional and individual investors with a full
range of investment services, including investment consulting, investment
funds which include private equity and hedge funds, transition management,
commission recapture and stock indexes. Founded in 1936, Russell has its
headquarters in Tacoma, Washington, USA and has principal offices in Toronto,
New York, London, Paris, Sydney, Singapore, Auckland, and Tokyo. Russell
Investments Canada Limited is a wholly-owned subsidiary of Frank Russell
Company. For more information, please go to www.russell.com/ca.
Russell Investment Group is a registered trade name of Frank Russell
Company, a Washington, USA corporation. It operates in Canada through its
subsidiary Russell Investments Canada Limited. Frank Russell Company is a
subsidiary of The Northwestern Mutual Life Insurance Company.
For further information:
For further information: Catherine Winchell, Russell Investments Canada,
(416) 640-6899; Katita Stark, Stark Communications Inc., (416) 929-9100