Russell Active Manager Report Highlights
- Small cap managers outperform large cap managers for third
- Strongest outperformance of small cap managers over large cap
managers since 1988
- Value managers edge out growth managers
TORONTO, Oct. 28 /CNW/ - For the third consecutive quarter, Canadian small cap managers outperformed large cap managers - according to the latest Russell Active Manager Report. The median small cap manager return of 19.5% in the third quarter of 2009 was more than 9% ahead of the median large cap manager return of 10.2%.
"This was the strongest outperformance of small cap managers relative to large cap since Russell Investments has been collecting this data, which began in 1988. It's not a huge surprise given how strong small cap stocks performed during the quarter," says Kathleen Wylie, Senior Research Analyst at Russell Investments Canada Limited.
The S&P/TSX Small Cap Index returned 21.9% in the third quarter, more than double the return of the broader S&P/TSX Composite Index return of 10.6%.
"On average, small cap managers had 20% of their portfolio in Materials stocks compared to an average of 13% for large cap managers," says Wylie. The Materials sector outperformed in both the S&P/TSX Composite Index and the S&P/TSX Small Cap Index in the third quarter.
"However, it's important to point out that the composition of the S&P/TSX Small Cap Index is very different than the S&P/TSX Composite Index. Materials stocks account for 28% of the small cap index weight compared to 18% in the broader S&P/TSX Composite Index. Small cap managers were almost 8% underweight Materials relative to the S&P/TSX Small Cap Index, which made it difficult for small cap managers to outperform their benchmark."
Large Cap Managers lag benchmark
41% of large cap managers were able to beat the S&P/TSX Composite Index in the third quarter of 2009, compared to the 38% of large cap managers that outperformed the S&P/TSX index in the second quarter. Only 36% of large cap managers outperformed the benchmark in the first quarter of this year.
"The trend is improving in terms of benchmark relative performance for large cap managers. However, it has been a challenging year, due in large part to narrow sector performance. Over the long run, active managers have outperformed the benchmark on average by almost 30 basis points per quarter," says Wylie.
"Only 4 out of 10 sectors beat the S&P/TSX Composite Index return in the third quarter: Health Care, Financials, Materials, and Industrials. Although large cap managers are slightly overweight Financials, they are still roughly 5% underweight Materials. This allocation negatively impacted their benchmark relative performance. Large cap managers still have their largest relative weights in Consumer Discretionary and Consumer Staples companies, which also detracted from performance."
Value and growth managers slightly ahead of benchmark
There was minimal difference between the performance of growth and value managers in the third quarter, with value managers slightly outperforming. The median value manager return was 11.0% compared to the median growth manager return of 10.7%. Roughly 54% of value managers were able to beat the S&P/TSX Composite Index's return of 10.6%, compared to 53% of growth managers.
"It's interesting to note that the range in returns from the best to the worst performing manager was significantly wider for value managers than for growth. There was a difference of almost 12% for value managers compared to only 7% for growth," says Wylie.
"Growth managers, on average, were underweight the outperforming Financials sector while value managers' positioning varied. On average, value managers were slightly overweight the sector."
"It appears that the active management environment has improved in the fourth quarter thus far, due to an increase in the breadth of sector returns," says Wylie.
"Based on these early indicators, the fourth quarter could be tilted toward growth managers. Growth managers are favourably positioned in the three largest sectors: Energy, Materials and Financials. Energy and Materials are outperforming so far in the fourth quarter. However, Financials are now underperforming after two quarters of strength. This development could favour growth managers and negatively impact value managers. Value managers on average are overweight the Financials sectors whereas a growth managers are underweight. This highlights how quickly styles come in and out of favour and why it remains important to invest in a well-diversified portfolio of multi-managers."
For previous Russell Active Manager Reports, please contact Thien Huynh: 416-640-2529
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 $187.2 billion CDN in assets under management (as of 9/30/09), Russell Investments 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 investors.
Founded in 1936, Russell Investments is a subsidiary of Northwestern Mutual Life Insurance Company and headquartered in Tacoma, Wash. Russell has principal offices in Amsterdam, Auckland, Johannesburg, London, Melbourne, New York, Paris, San Francisco, Singapore, Sydney, Tokyo and Toronto.
Russell Investments Canada Limited is a wholly-owned subsidiary of Frank Russell Company. For more information, please go to www.russell.com/ca.
SOURCE Russell Investments Canada Limited
For further information: For further information: Thien Huynh, (416) 640-2529; Katita Stark, (416) 929-9100