Mixed financial results for Q3

There are mixed financial results for the third quarter of 2012, according to the latest report from Russell Investments.

On the positive side, the S&P/TSX Composite Index rose 7% during this time, which is the largest quarterly increase since the fourth quarter of 2010.

On the negative side, only 18% of large cap managers in Canada outperformed the benchmark index, which is the lowest on record, according to the latest Russell Investments Active Manager Report. That was down from 69% in the second quarter.

“The median large cap manager returned 5.8% in the third quarter, which was a strong return,” says Kathleen Wylie, head of Canadian equity research at Russell. “But that return was notably behind the S&P/TSX Composite Index’s return as most managers struggled to beat the benchmark. For that reason, we describe it as a challenging active management environment.”

Only three out of 10 sectors beat the S&P/TSX Composite Index in the third quarter. The narrow sector performance, led by energy and materials, made it challenging for active managers to keep up with the benchmark return.

“Large cap managers, on average, are 5% underweight materials and nearly 2% underweight energy stocks, so when those two sectors run, these managers struggle to beat the benchmark,” says Wylie.

The energy and materials sectors combined accounted for two-thirds of the S&P/TSX Composite Index’s return in the quarter.

Gold up
Gold stocks rose 18% in the third quarter, the largest quarterly gain since the second quarter of 2010. “Large cap managers, on average, are more than 4% underweight gold stocks so when these stocks surge, active managers tend to struggle relative to the benchmark since gold stocks have such a large weighting in the index,” says Wylie.