Active Management Shines in Canada in 2013: Best year since 2001 - According to Russell Investments Canada Limited

Russell Canadian Active Manager Report Highlights

Median large cap manager more than 6% ahead of the S&P/TSX Composite Index return in 2013

Dividend managers led in the fourth quarter and for the year

2014 not starting off as strongly for Canadian active managers

TORONTO, Feb. 20, 2014 /CNW/ - Large cap managers in Canada posted their strongest benchmark-relative performance in 12 years in 2013, according to the latest Russell Investments Active Manager Report. The median return for the year was an astounding 19.1%, more than 6% ahead of the S&P/TSX Composite Index's return of 13.0%. Using annual returns, 94% of large cap managers beat the benchmark in 2013 compared to 76% in 2012. This was the highest percentage since Russell began to closely track the data in 2000.

"The strong environment for large cap managers in Canada was not a surprise last year," highlights Kathleen Wylie, Head, Canadian Equity Research at Russell Investments, "because active managers beat the benchmark in every quarter. In fact, they have outperformed the benchmark for five consecutive quarters, which we have not experienced since 2001."

The year ended on a positive note, with 86% of large cap managers beating the benchmark in the fourth quarter of 2013. That followed 74% in the third quarter, 95% in the second and 79% in the first quarter. The median large cap return was 8.4% in the fourth quarter of 2013, which was well above the S&P/TSX Composite Index's return of 7.3%.

The Russell Canadian Active Manager Report is produced quarterly and is based on recently released data from more than 140 Canadian institutional equity manager products.

What benefited managers for the year overall was positive sector breadth, with eight out of 10 sectors beating the benchmark; the most breadth since 2001. "Investment managers were also helped by the decline in gold stocks in the year," highlights Wylie. Gold stocks fell 44% in 2013 and large cap managers in Canada were roughly 3.5% underweight gold stocks on average throughout the year.

"Gold stock performance has been a problem for active managers in the past, particularly in 2011, when their weight reached a peak of 14% and active managers were roughly 6% underweight the stocks," explains Wylie. "Managers were significantly underweight gold stocks back then since they were such a large weight in the Index so when the stocks spiked, it would have a big negative impact on their benchmark-relative performance."

Dividend managers lead the quarter and for the year

All styles of large managers beat the benchmark for the year, but dividend managers led the way. They were helped by having the largest underweight to gold stocks. As well, they also benefited from the strong performance of Financial stocks last year since they have an overweight position. The median dividend manager return for the year was 20.6%, over 7% ahead of the S&P/TSX Composite Index's return of 13.0%. Differences between value and growth managers for the year were nominal with growth managers 7.1% ahead of the benchmark and value managers 7.0% ahead.

In the fourth quarter, dividend managers pulled ahead with 93% beating the benchmark and a median return of 8.9% compared to the benchmark return of 7.3%. That compares to 83% of growth and 81% of value managers beating the S&P/TSX Composite Index's return. Dividend managers were helped in the quarter by being overweight Financials and more underweight gold stocks compared to other investment styles. On average, dividend managers were 4.4% underweight gold stocks at the start of the fourth quarter compared to value managers who were 3.2% underweight and growth managers who were 2.7% underweight on average. Gold stocks fell 9.8% in the fourth quarter alone so that helped dividend managers the most. Of the 10 largest negative contributing stocks, six of them were gold stocks.

The strength in the banks was also a key contributor for dividend managers who tend to hold them more broadly than value and growth managers. The top contributing stock in the fourth quarter was Royal Bank, up 9.3% and held by 83% of dividend managers compared to 70% of value and 75% of growth managers. Bank of Nova Scotia was the second top-contributing stocks, and rose 12.6% in the fourth quarter. That was held by 90% of dividend managers, 88% of growth and 79% of value managers. TD Bank was the third top-contributing stock, up 8.9% and also held by 90% of dividend, 88% of growth and 79% of value managers.

Year not starting on a great note

More than halfway into the first quarter, it looks like the environment has become challenging for large cap managers in Canada. Sector breadth is narrower with only four sectors ahead of the benchmark and the Materials sector is among the top outperformers. Large cap managers on average are 3% underweight Materials stocks so that is hurting their benchmark-relative performance. Within Materials, gold stocks are up roughly 26%, which is hurting large cap managers, who are 3% underweight on average. Dividend managers are likely lagging the most since they have the largest underweight to gold stocks, which are outperforming and are overweight Financials, which are underperforming.

Although the environment is not as favourable so far in 2014, active management has added value for three consecutive years in Canada after challenges in 2009 and 2010. "There will be periods where active management struggles," highlights Wylie, "but we continue to believe that investment managers who have disciplined processes and the skill to construct portfolios of fundamentally strong companies trading at reasonable valuations with solid management teams, will add value in the long run." Over the last 10 years, an average of 55% of large cap managers have beaten the benchmark.

For more information on the benefits of active management and for information on Russell Investments please contact us at 1-888-509-1792. For institutional clients, please contact us at 1-866-737-2228.

About Russell Investments

Russell Investments (Russell) is a global asset manager and one of only a few firms that offers actively managed multi-asset portfolios and services that include advice, investments and implementation. Working with institutional investors, financial advisors and individuals, Russell's core capabilities extend across capital market insights, manager research, portfolio construction, portfolio implementation and indexes.

Russell has more than C$272.7 billion* in assets under management (as of 12/31/2013) and works with over 2,500 institutional clients, independent distribution partners and individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell has US$2.4 trillion in assets under advisement (as of 6/30/2013). It has four decades of experience researching and selecting investment managers and meets annually with more than 2,200 managers around the world. Russell traded more than US$1.4 trillion in 2012 through its implementation services business. Approximately US$4.1 trillion in assets are benchmarked to the Russell Indexes.
Headquartered in Seattle, Washington, Russell operates globally, including through its offices in Seattle, New York, London, Paris, Amsterdam, Sydney, Melbourne, Auckland, Singapore, Seoul, Tokyo, Beijing, Toronto, Chicago, San Diego, Milwaukee and Edinburgh. For more information about how Russell helps to improve financial security for people, visit www.russell.com or follow @Russell_News.

*includes more than US$74.8 billion of derivative overlay assets under management not included prior to June 30, 2013

Important Information

Nothing in this publication is intended to constitute legal, tax securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. This is a publication of Russell Investments Canada Limited and has been prepared solely for information purposes. It is made available on an "as is" basis. Russell Investments Canada Limited does not make any warranty or representation regarding the information.

Unless otherwise stated all index data is sourced from ©BNY Mellon Asset Servicing.  All rights reserved.

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Russell Investments Canada Limited is a wholly owned subsidiary of Frank Russell Company and was established in 1985. Russell Investments Canada Limited and its affiliates, including Frank Russell Company, are collectively known as Russell Investments.

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SOURCE: Russell Investments Canada Limited

Catherine Winchell   
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