"Active managers on average were underweight Energy and Materials and slightly overweight Financials, helping them beat the benchmark after lagging for four consecutive quarters. Managers benefited from more breadth in terms of sector performance with 7 out of 10 sectors beating the benchmark. Most investment managers struggle during extreme narrow markets which are dominated by 1 or 2 sectors, so that made it challenging for active managers in the last year but there was a notable improvement during the third quarter," says Kathleen Wylie, Senior Research Analyst at Russell Investments Canada Limited. Of importance is the finding that Financials were the only sector to show a positive return for the third quarter after having lagged the overall composite return for five consecutive quarters prior to this quarter.
The Active Manager Report also found that after battling for much of the last 3 years, an amazing 93% of value managers in Canada beat the benchmark in the third quarter compared to just 27% of growth managers. That compares to just 12% of value managers and 81% of growth managers in the second quarter. The median large cap value manager return was -12.9% compared to the median growth manager return of -20.9%.
Sector weighting was a major factor for value managers outperforming growth managers. “On average, value managers were roughly 5% overweight the Financial sector compared to growth managers who were 6% underweight. Also helping value managers were their underweights to the three worst performing sectors, Information Technology, Materials and Energy, whereas growth managers were, on average, overweight those sectors. In terms of overall sector positioning, value managers were more favourably positioned in 9 of 10 sectors compared to growth managers, resulting in a significant factor in value manager outperformance.”
Source: Russell Investments
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