Nearly 9 in 10 Canadian equity funds underperformed in first half: report

The vast majority of actively managed Canadian equity funds underperformed their benchmark indexes in the first half of 2026, according to a report released this week by index provider S&P Dow Jones Indices.

That underperformance occurred despite a growing gap between winning and losing stocks, which may have created more opportunities for active investors to outperform, the S&P Indices Versus Active (SPIVA) Canada Mid-Year 2026 Scorecard showed.

Over the first six months of the year, 87 per cent of Canadian activeequity funds underperformed the S&P/TSX Composite TXCX, Canada’s broadest equity index, according to the report. That number was “well above” the 81.8 per cent average over each of the past 10 calendar years, S&P Dow Jones Indices strategists Joseph Nelesen, Lucas Hyman and Liam Flaherty wrote.

On both an equal-weight and asset-weighted basis, actively managed Canadian equity funds returned an average of 8.8 per cent over the first six months of the year, against a gain of 11.2 per cent for the TSX Composite.

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The underperformance of equity funds came as dispersion levels – the gap between winning and losing stocks – rose in both Canadian and international indexes.

Rising dispersion has the potential to create opportunities for stock selection to pay off, Mr. Nelesen told The Globe and Mail in an interview, but it can also increase the downside for active funds holding extreme underperformers.

Most stocks in Canadian and international equity markets trailed their respective benchmarks in the first half, according to the report.

Mr. Nelesen said it can be “hard mathematically” to reliably pick winning stocks when they are in the minority, adding that fees make it “almost mathematically impossible to have persistently more than half outperform a benchmark.”

The SPIVA Scorecard calculates fund performance net of fees.

The underperformance of Canadian funds comes at a time of high concentration in major equity indexes, with the top 10 constituents of both the S&P 500 INX and the S&P/TSX Composite accounting for nearly 40 per cent of the weight of their respective indexes.

“There are some consistent forces that are difficult for anyone trying to trade actively, including managers or individuals, and I think one of those forces is concentration,” Mr. Nelesen said. He noted most active managers tend not to hold the largest stocks at their market weights.

When those largest stocks are leading a rally, “that can correlate with higher rates of underperformance,” he said.

Mr. Nelesen said the top five stocks by weight had contributed to 23 per cent of the total return of the TSX Composite in 2024, 28 per cent in 2025 and about 33 per cent in the first half of 2026.

“It’s true that the benchmark is difficult to beat,” said Jonathan Lo, portfolio manager at Toronto-based Ninepoint Partners, describing what he said has been a “really tricky market.”

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“And it’s difficult to beat because active managers have a fee. And to the extent that you maintain the same sort of exposure throughout a cycle, it becomes harder to beat that fee.”

He said investors could nevertheless benefit from a “differentiated portfolio” as index concentration “may not work for investors as well as it has in the past.”

“You want to have exposure to truly active managers who are different and are willing to change their portfolio as these leadership trends change,” Mr. Lo said.

Canadian equity funds performed worse against their benchmarks than their U.S. counterparts. A total of 67 per cent of all active large-cap U.S. equity funds lagged the S&P 500 index in the first half, according to a previously released S&P Dow Jones report focused on U.S. funds.

“I think it’ll be an interesting time to see how the second half of the year works out for these Canadian active funds,” Mr. Nelesen said.