Yes, it is generally true that most mutual funds underperform the market. That was true when this post was first written in 2023 — and the newest numbers say it is still true today.
What the latest scorecard says
Every year, S&P Dow Jones Indices publishes the SPIVA Canada Scorecard. It compares actively managed funds — funds where a manager picks the investments — against the market benchmark each fund is trying to beat. Here is what the mid-year 2026 scorecard found for the first half of 2026:
- 87% of Canadian equity funds trailed the S&P/TSX Composite Index.
- 85.7% of Canadian focused equity funds trailed their benchmark.
- 81.6% of Canadian dividend and income equity funds trailed theirs.
- 79% of U.S. equity funds trailed the S&P 500.
- 100% of international equity funds trailed their benchmark — every single one.
Across all seven fund categories, an average of 80% of active funds underperformed in just six months.
The long-term picture is even starker. Over ten years, underperformance reached 98.8% for Canadian equity funds and 100% for both Canadian focused equity and international equity funds. And the funds that do win rarely repeat: S&P’s persistence research found that in every category, a quarter of funds or fewer managed to stay in the top quartile across two consecutive five-year periods. Picking last year’s winner is mostly chasing a hot streak.
Why fees are the main culprit
The biggest reason is simple arithmetic: fees. Every mutual fund charges a yearly fee called a Management Expense Ratio (MER) — a percentage of your money, taken every year whether the fund beats the market or not.
Think about what that means. If the market returns 8% and your fund charges 2% a year, the fund’s manager must beat the market by more than 2% just for you to break even. Most managers cannot do that consistently, year after year, after fees. The fee is the hurdle, and it is there every single year.
This does not mean every mutual fund is bad. Some funds do outperform, and some investors have good reasons for choosing an actively managed fund. But the odds are long, and they get longer the higher the fee.
What to do about it
Before you buy or keep any fund, ask two questions:
- What is the total fee I pay each year? Ask for the MER in writing. If the answer is vague, that vagueness is itself information.
- What am I getting for that fee? A low-cost fund that simply tracks the market gives you the market’s return minus a small fee. An expensive fund has to earn its fee first — and the scorecard says most do not.
You do not need to become an expert to act on this. Knowing the fee, and knowing the odds, is already more than most investors ever check.
Want help reviewing what you are paying for your own funds and what your options are? Visit kwicoaching.com and use the contact form to ask about coaching.
Disclaimer: This post is general education only. It is not financial advice, and it is not a recommendation to buy or sell any security. Past performance does not guarantee future results.
Further reading: Beat the Bank by Larry Bates — a Canadian look at how bank fees eat into investment returns. (Affiliate link — we may earn a small commission if you buy through this link, at no extra cost to you.)
