Why 93% of Canadian Fund Managers Lose to the Index: The SPIVA Scorecard Explained

A few years ago, I sat down with my bank statement and did something I should have done much sooner: I compared my actively managed mutual fund’s actual returns against a boring, plain-vanilla index.

I had been paying 2.3% in fees for a “Canadian Equity Growth” fund. The advisor assured me the fund’s professional management team was worth every penny. They had research analysts. They had algorithms. They had decades of combined experience.

They also had returns that trailed the S&P/TSX Composite Index by more than 1.5% per year over the five years I held the fund. After fees, I would have been meaningfully better off just buying a low-cost index ETF and going to the beach.

That experience sent me down a rabbit hole that changed how I invest forever. The rabbit hole had a name: the SPIVA Scorecard. And what it reveals about active fund management in Canada is, frankly, damning.

In this post, I am going to walk you through exactly what the SPIVA Scorecard is, what the Canadian numbers actually say, why the vast majority of professional fund managers fail to beat a simple index, and what you can do about it. Spoiler: the answer involves a certain globally diversified ETF that costs 0.20% per year.

1. What Is the SPIVA Scorecard?

SPIVA stands for S&P Indices Versus Active. It is a semi-annual research report published by S&P Dow Jones Indices (the same people behind the S&P 500) that measures how actively managed funds perform compared to their benchmark indices.

Here is what makes SPIVA special and why it is considered the gold standard of this debate:

• It is independent. S&P Dow Jones Indices is not an ETF company, not a robo-advisor, not a passive investing advocacy group. They have no financial incentive to make active managers look bad. They just report the data.
• It covers multiple countries. SPIVA publishes scorecards for the US, Canada, Europe, Australia, Japan, India, South Africa, and Latin America. The results are remarkably consistent across geographies.
• It accounts for survivorship bias. This is critical and I will explain it in detail later. Many fund performance studies only look at funds that still exist today, ignoring all the funds that performed so poorly they were quietly shut down or merged. SPIVA corrects for this, which makes its numbers more honest (and more brutal for active managers).
• It uses proper benchmarks. Each fund is compared to the index that matches its stated investment style. A Canadian equity fund gets compared to a Canadian equity index, not some irrelevant benchmark that makes it look good.

The SPIVA Canada Scorecard has been published for over 20 years now, and the results have been remarkably consistent: the longer the time period, the worse active managers look.

2. The Canadian Numbers: How Bad Is It Really?

Let us get straight to the data. According to the SPIVA Canada Scorecard, here is the percentage of actively managed Canadian equity funds that underperformed their benchmark index over various time periods:

Read that 20-year number again: 93% of Canadian equity fund managers failed to beat their benchmark over 20 years. These are not amateurs investing from their basement. These are highly educated, well-resourced professionals with teams of analysts, real-time data feeds, and decades of collective experience. And 93% of them could not keep up with a simple index.

The results are not unique to Canadian equity funds either. SPIVA Canada also tracks US equity funds sold in Canada, international equity funds, and bond funds. The pattern is the same across all categories: the longer you hold an active fund, the more likely it is to underperform.

And here is the thing that really stings: Canadian investors pay among the highest mutual fund fees in the entire developed world. We are paying a premium for underperformance. That is a terrible deal by any measure.

3. Active Fund Returns vs. Passive Index (XEQT) Over Time

Let us put some concrete numbers on this. The following table compares the average returns of actively managed Canadian equity funds against the S&P/TSX Composite Index and shows where XEQT sits in the picture.

Remember, XEQT is not a Canadian-only fund – it is globally diversified across approximately 8,000 stocks in 49 countries. But this comparison illustrates the broader principle: paying more for active management does not get you more.

Figures are illustrative averages based on SPIVA Canada data and publicly available index returns. Individual fund results vary.

That 1.5-2.1% annual gap does not sound catastrophic in a single year. But compounded over decades, it is the difference between a comfortable retirement and having to work five extra years. We will get into the exact dollar math in Section 8.

The takeaway is clear: on average, active funds deliver less than the index, not more – and they charge you significantly higher fees for the privilege. It is like paying extra for a first-class ticket and ending up in a middle seat in economy.

4. Why Do Professional Fund Managers Fail?

This is the question everyone asks: if these managers are so smart and so well-resourced, why can’t they beat the index? It turns out there are several structural reasons that make consistent outperformance nearly impossible.

The Fee Drag Problem

This is the biggest one. The average Canadian equity mutual fund charges an MER (Management Expense Ratio) of roughly 2.0-2.3%. That means the fund manager has to outperform the index by more than 2% per year just to break even with a passive index fund after fees. That is an enormous hurdle.

Think of it like a race where one runner starts at the starting line (the index) and the other starts 20 metres behind (the active fund, weighed down by fees). The second runner might be faster, but they have to be significantly faster every single year just to keep up – let alone win.

Transaction Costs

Active managers buy and sell stocks frequently. Each trade incurs costs: brokerage commissions, bid-ask spreads, and market impact (large trades can move the price against you). These costs are on top of the MER and can add another 0.2-0.5% per year in drag.

Cash Drag

Mutual funds are required to keep some cash on hand to handle investor redemptions. That cash earns very little. In a rising market, holding 3-5% of the portfolio in cash creates a persistent drag on returns compared to a fully invested index.

Style Drift

Many fund managers deviate from their stated strategy when things are not going well. A “value” fund manager might start buying growth stocks if value is underperforming, or a Canadian equity manager might load up on US stocks chasing recent returns. This drift introduces additional risk and often results in buying high and selling low at the category level.

Human Bias

Fund managers are human beings with the same cognitive biases as the rest of us. They experience overconfidence, anchoring, herd mentality, and loss aversion. The difference is that when a retail investor makes an emotional decision, they lose a few hundred dollars. When a fund manager makes one, it affects millions of dollars of client money.

The Arithmetic of Active Management

This is the most elegant argument, made famous by Nobel laureate William Sharpe. His logic is bulletproof:

1. The market’s total return is the average return of all investors (active and passive) combined, before fees.
2. Passive investors earn the market return minus very low fees.
3. Therefore, active investors in aggregate must also earn the market return before fees.
4. But active investors pay much higher fees.
5. Therefore, active investors in aggregate must underperform passive investors after fees.

This is not a theory or an opinion. It is mathematical identity. The only question is how many active managers underperform, and SPIVA gives us that answer: almost all of them, eventually.

5. The Survivorship Bias Problem: It Is Even Worse Than It Looks

Here is something that most investors never consider: the SPIVA numbers I shared above actually understate how bad active management is.

Why? Because of something called survivorship bias.

When an actively managed fund performs terribly for several years, the fund company does not just leave it sitting there as an embarrassment. They quietly merge it into a better-performing fund or shut it down entirely. The poor track record disappears. Poof. Gone. As if it never existed.

According to SPIVA Canada data, roughly 30-40% of Canadian equity funds that existed 15 years ago no longer exist today. They were merged or liquidated because their performance was so poor that the fund company could no longer justify keeping them alive.

Here is why this matters:

If you only look at the funds that survived for 15 years, you are looking at a pre-selected group of winners. The worst performers have already been eliminated from the dataset. It is like evaluating a restaurant by only surveying the customers who came back for a second meal – you are missing all the people who had a terrible experience and never returned.

SPIVA corrects for this by including the returns of dead and merged funds in their calculations. That is what makes their numbers so much more honest than typical fund performance data. And yet, even after correcting for survivorship bias, 90%+ of active managers still underperform over the long term.

Without the survivorship bias correction? The number of “winners” would be even smaller. Some researchers estimate that the true long-term outperformance rate, properly accounting for every fund that ever existed, is closer to 2-3% rather than the already dismal 7%.

Let that sink in. If you pick an active fund at random, the odds of it beating the index over 20 years may be less than 1 in 30.

6. “But What About the 7% Who Beat the Index?”

This is the most common objection I hear, and it is a fair one. If some managers do outperform, why not just invest with them?

Three reasons.

You Cannot Identify Them in Advance

The fund companies that beat the index over the last 10 years are not the same ones that will beat it over the next 10 years. Study after study has shown that past performance is not predictive of future performance for actively managed funds.

S&P Dow Jones publishes a companion report to SPIVA called the Persistence Scorecard. It measures whether top-performing funds stay at the top. The results are devastating:

• Of Canadian equity funds that ranked in the top 25% over a five-year period, fewer than 5% remained in the top quartile for the next five years.
• The correlation between past five-year performance and future five-year performance is essentially zero – no better than random chance.

Picking last decade’s winner is like picking last year’s lottery numbers. It feels logical, but it has no predictive value.

Luck vs. Skill

With thousands of funds operating at any given time, some will outperform purely by chance. If you flip a coin 10 times, some coins will land heads 8 out of 10 times. That does not make them special coins.

Researchers Eugene Fama and Kenneth French published a landmark study showing that the distribution of active fund manager returns is almost exactly what you would expect from pure randomness. The “winners” are not demonstrably skilled – they are statistically expected outliers in a large sample.

The Winners Change Fee Structures

Here is a cruel irony: when a fund does manage to outperform, the fund company often raises fees or closes the fund to new investors. The very success that made the fund attractive becomes inaccessible. Meanwhile, the fund manager’s subsequent performance tends to regress to the mean (or worse), because the conditions that produced the outperformance were temporary.

Bottom line: you cannot reliably pick the 7% in advance, and even if you could, there is no guarantee they will stay in that group. The rational response is to stop trying and simply own the index.

7. The Math of Fees: What Active Management Actually Costs You

Let us move from percentages to real dollars. This is where the impact of choosing an active fund over a low-cost ETF like XEQT becomes visceral.

Assumptions:

• Starting investment: $100,000
• No additional contributions (to isolate the fee impact)
• Gross market return: 7% annually (before fees)
• Time horizon: 25 years

Look at that last row carefully. A typical bank mutual fund with a 2.20% MER costs you nearly $200,000 on a single $100,000 investment over 25 years – even assuming it matches the market’s gross return (which, as SPIVA shows, 93% of them do not).

And remember: we assumed the active fund earned the same gross return as the index. In reality, most active funds underperform even before fees. So the true cost of active management is even higher than this table suggests.

That $197,417 difference is not some abstract number. It is:

• Five years of retirement income at a 4% withdrawal rate
• A substantial down payment on a home
• Your children’s entire post-secondary education
• A lifetime of dollar-cost averaging into XEQT at $650/month for 25 years

The fee difference between active and passive investing is one of the very few things in investing that you can control. You cannot control market returns, interest rates, or inflation. But you can control what you pay in fees. And that decision alone can be worth hundreds of thousands of dollars.

For a deeper dive into how fees compound over time, check out our post on the 1% Rule.

8. How XEQT Solves the Active Management Problem

Now that we have established the case against active management, let us talk about the alternative. XEQT (iShares Core Equity ETF Portfolio) is designed to give you everything the index offers – and then some – at a fraction of the cost.

Here is why XEQT is the antidote to the active management trap:

Ultra-low fees. XEQT’s MER is 0.20%. Compare that to the 2.0-2.3% you would pay for a typical actively managed mutual fund. That is roughly one-tenth the cost. Over 25 years, as we just saw, that difference is worth nearly $200,000 on a $100,000 investment.

Global diversification. XEQT does not just track the Canadian market. It holds approximately 8,000+ stocks across 49 countries, including:

• ~45% US equities
• ~25% Canadian equities
• ~22% International developed markets (Europe, Japan, Australia, etc.)
• ~8% Emerging markets (China, India, Brazil, etc.)

This is broader diversification than virtually any actively managed Canadian fund will give you. When one market struggles, others can pick up the slack.

Automatic rebalancing. XEQT is a “fund of funds” that holds four underlying iShares ETFs. BlackRock (the manager) automatically rebalances these holdings to maintain the target allocation. You never need to worry about rebalancing yourself – it happens behind the scenes. This is a genuine advantage because proper rebalancing is something most DIY investors either forget to do or do incorrectly.

No human bias. XEQT follows a rules-based index methodology. There is no fund manager making emotional decisions, chasing trends, or drifting from the strategy. The fund does exactly what it says it will do, every single day.

Tax efficiency. Index ETFs like XEQT tend to have lower portfolio turnover than actively managed funds, which means fewer taxable capital gains distributions. In a non-registered account, this tax efficiency is an additional advantage on top of the lower MER.

Simplicity. One purchase. One holding. Global equity exposure. Automatic rebalancing. You do not need to research individual stocks, evaluate fund managers, or monitor multiple holdings. Buy XEQT, set up dollar-cost averaging, and get on with your life.

9. What to Do If You Are Currently in Actively Managed Funds

If you are reading this and realizing that your mutual fund portfolio is likely in that 93% of underperformers, here is a practical step-by-step plan for making the switch.

Step 1: Find Out What You Are Actually Paying

Log into your investment account or dig up your latest statement. Look for the MER or management fee. If you hold mutual funds at a big bank, it is almost certainly between 1.8% and 2.5%. If you cannot find it, call your advisor and ask: “What is the total MER on each fund I hold?”

Step 2: Calculate the Damage

Use a compound interest calculator to see what those fees are costing you over your remaining investment horizon. The numbers will be sobering. For a quick reference, refer to the table in Section 7 above.

Step 3: Open a Self-Directed Account

You need a brokerage account that lets you buy ETFs directly. My recommendation is Wealthsimple – it offers commission-free ETF trading, no account minimums, and a beautiful app that makes buying XEQT dead simple. You can also use Questrade (free ETF purchases) or a discount brokerage at your bank.

Step 4: Check for Exit Fees

If your mutual funds have deferred sales charges (DSCs), you may face a penalty for selling early. DSCs are being phased out in Canada, but older funds might still have them. Check your fund facts document. Even if there is a DSC, do the math – paying a 2-3% exit penalty once is often much cheaper than continuing to pay a 2%+ MER every year for the next 20 years.

Step 5: Transfer or Sell and Rebuy

You have two options:

• In-kind transfer: Move your existing investments to the new brokerage, then sell and buy XEQT there. This avoids being “out of the market” during the transfer.
• Sell first, transfer cash: Sell your mutual funds, transfer the cash, and buy XEQT. Simpler, but you might be out of the market for a few business days.

If you are in a registered account (TFSA or RRSP), there are no tax consequences for selling. If you are in a non-registered account, selling may trigger capital gains tax. Consult the capital gains tax guide to understand the implications.

Step 6: Set Up Automatic Contributions

Once your XEQT is purchased, set up a recurring deposit and automatic buy. Wealthsimple lets you do this in minutes. Now you are dollar-cost averaging into a globally diversified portfolio at a fraction of the cost you were paying before.

Step 7: Do Not Look Back

Your old advisor may call. Your bank may try to convince you to stay. They will tell you that “active management protects you in downturns” or “our fund managers add value.” Now you know the data. Ninety-three percent of them do not.

10. Frequently Asked Questions

“Do not some active funds do well in bear markets?”

This is a common marketing claim, and it is mostly a myth. SPIVA tracks performance in both up and down markets. While a small number of active managers do outperform during downturns, they tend to underperform during the subsequent recovery, negating any benefit. Over full market cycles, the numbers are the same: the vast majority underperform.

“What about hedge funds and alternative investments?”

Hedge funds have even higher fees (typically 2% management fee plus 20% of profits) and their aggregate performance is similarly poor relative to a simple 60/40 or all-equity index portfolio. The SPIVA data covers traditional mutual funds, but the academic literature on hedge fund underperformance is equally damning.

“Is the SPIVA Scorecard biased against active managers?”

Some critics argue that SPIVA’s methodology is unfair in certain technical ways (benchmark selection, currency adjustments, etc.). These are valid discussions at the margins, but no credible analysis has overturned the core finding. Whether you use SPIVA, Morningstar’s data, or academic research, the conclusion is the same: the majority of active managers underperform after fees.

“If I have a financial advisor I trust, should I still switch?”

A good financial advisor provides real value in areas like tax planning, estate planning, and behavioral coaching (keeping you from selling during crashes). But you do not need to pay 2%+ in fund fees for that advice. Many fee-only advisors charge a flat rate or a modest percentage and will happily build your portfolio around low-cost ETFs like XEQT. Separate the advice from the product.

11. The Bottom Line

The SPIVA Scorecard is not a one-off study or a controversial opinion piece. It is two decades of rigorously collected, survivorship-bias-adjusted data showing the same thing over and over again: the vast majority of actively managed funds in Canada underperform their benchmark index after fees.

Over 20 years, 93% of Canadian equity fund managers failed to justify their existence. And the managers who did outperform cannot be identified in advance – their past performance is statistically no better than a coin flip at predicting future success.

Meanwhile, Canadian investors continue to pay some of the highest mutual fund fees in the developed world, surrendering potentially hundreds of thousands of dollars to an industry that, in aggregate, delivers less than a simple index.

The solution is straightforward:

1. Stop paying for active management. The data is overwhelming. You are almost certainly paying more for less.
2. Buy XEQT. A single purchase gives you global diversification across 8,000+ stocks, automatic rebalancing, and a 0.20% MER that is roughly one-tenth of what most active funds charge.
3. Automate your contributions. Set up dollar-cost averaging so you invest consistently without having to think about it.
4. Stay the course. The hardest part of investing is not picking the right fund. It is having the discipline to stick with a boring strategy when everyone around you is chasing the latest hot stock or trendy sector.

The evidence is clear. The math is clear. The path forward is clear.

You do not need a professional fund manager. You need a plan, a low-cost globally diversified ETF, and the patience to let compounding do its work.

Related Reading

• What Is XEQT? – Everything you need to know about Canada’s most popular all-in-one equity ETF.
• The 1% Rule: How a Tiny Fee Difference Costs You $100,000+ – A deep dive into how fees compound and destroy wealth over time.
• Dollar-Cost Averaging into XEQT – The complete guide to systematic, stress-free investing.
• XEQT vs. Robo-Advisors – How XEQT compares to managed portfolios from Wealthsimple and others.
• Best Platform to Buy XEQT in Canada – Compare Wealthsimple, Questrade, and other brokerages.
• XEQT Holdings: What You Actually Own – A breakdown of the 8,000+ stocks inside XEQT.

XEQT is a long-term investment and, like all equity investments, is subject to market risk including the potential loss of principal. Past performance does not guarantee future results. The information in this post is for educational purposes only and does not constitute financial advice. The SPIVA data referenced is based on publicly available S&P Dow Jones Indices research; individual results may differ based on the specific reporting period. Always do your own research and consider consulting a qualified financial professional before making investment decisions. This site may earn referral commissions from links to Wealthsimple.