Why 98%of Canadian Mutual Funds Are Losing to the Market

Investing Series — Part 1 of 3

This is the first of a three-part series on how Canadians actually invest, and why. Part one looks at active management — the default most people are in, whether they realize it or not. Part two will cover passive/index investing, and complicate the “passive is simply good” story more than you might expect. Part three brings it together into how we actually think about building portfolios.

If you don’t know exactly how your own money is invested right now,here’s a useful starting assumption: there’s a very good chance you’re in anactively managed fund. If you bank with one of the big five, the odds arearound 96%.

What “active management” actually means

An actively managed fund is run by a team — analysts, portfolio managers, CFAs —whose job is to beat a benchmark index (say, the S&P 500) after fees. They do this by making ongoing calls: which companies to overweight or underweight, when to hold cash on the sidelines, when to buy and sell. It’s a reasonable-sounding premise: hire smart, credentialed people with access to enormous amounts of data and research, and they should be able to out-earn a simple index.

The evidence says otherwise, consistently, for a long time.

What the data actually shows

According to PWL’s year-end 2025 report, the Canadian retail fund industry holds roughly$2.7 trillion, and about 77% of that is still sitting in actively managed funds. Using the SPIVA scorecard — the industry’s standard measure of active managers against their benchmarks — over the past 10 years, fewer than 2 out of every 100 Canadian equity mutual funds beat their benchmark. In 2025 alone, roughly 85% of Canadian active funds underperformed. And this isn’t a Canada-specific problem: US and global numbers land in a similar range, around2–3% of active funds beating their benchmark over a decade.

Why does this happen so reliably? Markets are efficient — prices already reflect the information available. Every active trade has a buyer and a seller on either side, each believing they have the edge. Before costs, active management is close to a zero-sum game across all participants. Once you layer fees on top, the average actively managed dollar is mathematically destined to under perform the average passively managed dollar over time.

The fee gap isbigger than it sounds

The average actively managed mutual fund in Canada carries a management expense ratio (MER) of about 1.92% — a fee that historically hasn’t been clearly disclosed on statements, though new CRM rules should improve that. Compare that to a typical passive ETF fee of roughly 0.25%.

Runthe numbers on $1 million invested at a 6.5% annualized return over 30 years,and the fee difference compounds into something enormous:

•            At a 1% total fee, that $1million grows to roughly $4.98 million.

•            At a 2% total fee, it grows toroughly $3.74 million.

•            At a 3% total fee, it grows toroughly $2.8 million.

Thegap between a 1% and 3% fee, on the same $1 million over 30 years, is over $2million left on the table — for a strategy that, on average, doesn’t evendeliver the outperformance it’s charging for.

So why is 77% ofthe money still there?

A few forces keep active management dominant in Canada. The big banks — who happen to be some of the largest companies in the country — have significant influence over the products being sold, and they’re incentivized to promote their highest-fee offerings, not necessarily the best ones for the client.

Behavioral biases play a role too. Chasing past performance is the biggest one — the instinct to find whichever fund beat the market recently and pile in, even though a strong prior decade says very little about the next one. Interestingly, this often looks less like individual investors doing their own research and more like advisors making active fund-selection decisions on top of the fund manager’s own active decisions, in an effort to demonstrate their own value.

Then there’s overconfidence bias — the same effect behind the well-known finding that roughly 75% of drivers rate themselves as better than average. Both individual investors and advisors are susceptible to believing they (or their picks) are the exception to a rule that applies to almost everyone else.

The part nobodyadvertises: funds disappear

Only about half of actively managed mutual funds in Canada survive 10 years (in the US, the number is even lower — roughly 64% don’t make it that far).Underperforming funds don’t typically get publicly retired with a press release; they get quietly closed, or repackaged under a new name with a fresh marketing push — funded by exactly the kind of fees discussed above.

Skill, or luck?

A widely cited 2010 studyby Fama and French modeled what returns would look like across roughly 3,000 USequity mutual funds if there were zero manager skill involved — pure luck. Whenthey compared that simulated “zero-skill” distribution to the real, observedresults from 1984–2006, the two were nearly identical. In other words, there’slittle evidence that trying to out-guess the market, as a group, adds any valueat all.

What comes next

None of this means passive investing is automatically the full answer — that’s exactly where part two of this series goes, including some of the real active decisions hiding inside “passive” strategies that rarely get talked about. But if you can’t reliably beat the market after fees, and the data says almost nobody can, the case for keeping costs low and letting the market do the work becomes hard to ignore.

This is part 1 of a3-part series. [Listen to episode 033 of The Chiro Money Show →]

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