Russell Active Manager Report Highlights
- Narrow market makes it challenging overall for managers to beat
benchmark - only 38% ahead
- Strength in Financials help value managers, with 57% beating the
benchmark in second quarter
- Third quarter looking like a better environment for active managers
TORONTO, Aug. 12 /CNW/ - The median Canadian large cap manager return of
19.1% during the second quarter of 2009 was the highest since the first
quarter of 1987, according to results from the latest Russell Active Manager
Report - a quarterly analysis of institutional investment managers.
"Considering the fact that sector performance was narrow with only 3 out
of 10 sectors beating the benchmark during the second quarter, active managers
did very well in that environment," says Kathleen Wylie, Senior Research
Analyst at Russell Investments Canada Limited.
However, the return was not quite high enough to beat the S&P/TSX
Composite Index's near-record second quarter return of 20%. Only 38% of large
cap managers beat the benchmark during the second quarter, up slightly from
36% in the first quarter.
Although Information Technology was the top-performing sector in the
quarter (+43%), the strength in the Financials sector (+35%) accounted for
almost half of the index gain.
"Active managers generally have been moving back into the Financials
sector. As a result, they had a modest overweight to Financials, on average,
so that certainly helped performance in the quarter. As well, managers have
been moving out of the Materials sector during the last couple of quarters and
have more-than-doubled their underweight. This strategy paid off in the second
quarter, since the Materials sector underperformed," says Wylie.
Many large cap managers were hurt during the second quarter by being
underweight in the Energy sector, which was the third-best performing sector.
"Overall sector positioning hurt active managers in the second quarter
given that large cap managers on average were only favourably positioned in 3
out of 10 sectors. However, they were able to mitigate some of the
unfavourable positioning with stock selection, particularly by investing in
Canadian banks, which are very popular with Canadian large cap investment
managers and were strong performers in the quarter," says Wylie.
"The top-contributing stock in the second quarter was Royal Bank of
Canada, which is held by 90% of Canadian large cap managers and was up 29%."
Value managers benefit from strength in the Financials sector
After lagging growth managers in the first quarter of 2009, 57% of value
managers beat the benchmark in the second quarter compared to just 40% of
growth managers. That compares to 37% of value managers and 47% of growth
managers in the first quarter of 2009. The median value manager return in the
second quarter was 20.7%, which was ahead of the median growth manager return
"Value managers that really emphasize attractively priced stocks with low
price-to-earnings and low price-to-book ratios had the strongest performance
in the second quarter since those stocks were most rewarded," says Wylie.
"Stock selection was key in the quarter and it appears that what value
managers did not hold was as important as what they held. For example, 6 out
of 10 of the bottom-contributing stocks were gold companies and with the
exception of Barrick Gold, those stocks tend to be more widely held by growth
managers than value managers, and at larger weights."
On average, value managers were 2.5% overweight the Financials sector
compared to growth managers, who were roughly 4.5% underweight at the start of
the second quarter.
"Within Financials, it was not the banks that differentiated value
managers from growth managers since they tend to have similar positioning in
the six diversified banks," says Wylie.
"Value managers tend to own more Life and Health Insurance companies
compared to growth managers and those were also strong contributors to the
index performance during the second quarter, rising by 40%."
During the first month of the third quarter of 2009, Financials was the
only sector to outperform the index, which was challenging for active managers
given such a narrow investment environment.
"However, performance broadened out in the first two weeks of August and
the positioning of active managers looks positive overall," says Wylie.
She also notes that performance is tilted toward value managers in the
third quarter with their positioning more favourable in 6 out of 10 sectors
compared to growth managers.
"Value managers are benefiting most by their overweight to Financials and
larger underweights to Energy and Materials," explains Wylie.
"It's encouraging that the environment looks more promising for active
managers in the third quarter after two quarters of lagging the benchmark. It
can be challenging at times but we know that active managers add value in the
long run, with the median large cap manager return roughly 30 basis points
ahead of the S&P/TSX Composite return on average per quarter during the last
10 years. In the short term, the market is not always driven by fundamentals
but they do matter. Investment managers that have skill in finding quality
companies trading at reasonable prices and actively repositioning their
portfolios will be rewarded in the long run."
For previous Russell Active Manager Reports, please contact Thien Huynh:
About Russell Investments
Russell Investments provides strategic advice, world-class
implementation, state-of-the-art performance benchmarks and a range of
institutional-quality investment products. With approximately $176.3
billionCDN in assets under management (as of 6/30/09), Russell serves
individual, institutional and advisor clients in more than 40 countries.
Russell Investments provides access to some of the world's best money
managers. It helps investors put this access to work in corporate defined
benefit and defined contribution plans, and in the life savings of individual
For further information:
For further information: Thien Huynh, (416) 640-2529; Katita Stark,