For the first time since the second quarter of 2007, Canadian small-cap managers outperformed large-cap managers, according to results from the latest Russell Investments Active Manager Report.
The median small-cap manager returned -1% compared with a median -2.7% return for large cap managers in 2009's first quarter.
Investments in materials and information technology companies helped small-cap managers because both sectors outperformed the market in the first quarter. In addition, small-cap managers held a relatively smaller portion of financial stocks in their portfolio, which also helped them as financials struggled in the first quarter.
The report found that only 36% of large-cap Canadian equity managers beat the S&P/TSX Composite Index in the first quarter, which was down from 72% in 2008's fourth quarter and 65% in the third quarter.
However, the report noted that within the quarter, 68% of all investment managers outperformed the market in February, when the TSX was down 6.3%.
The challenge for managers overall in the first quarter was poor market sector performance. Only four out of 10 sectors beat the market benchmark. In the first quarter, IT was the top performing sector, followed closely by materials. Also, the energy sector outperformed the index, a sector that managers tend to be underweight in.
Managers have tended to be overweight in consumer discretionary investments, industrials and consumer staples, and all these sectors underperformed in the first quarter.
The report also found that value-based managed lagged behind growth-focused managers in the first quarter. The median value manager returned -3.4% compared with -2% for growth managers. Only 37% of value managers beat the TSX composite index, which was down 67% in 2008's fourth quarter.