A sign board displays the TSX near Richmond Adelaide Centre in Toronto’s financial district.Evan Buhler/The Canadian Press
Too many Canadian investors are allowing a golden moment to pass them by.
The Canadian stock market is having a monumental run. The leading index for the Toronto Stock Exchange is up by 22 per cent this year, and 62 per cent over the past three years.
It doesn’t get much better than that. A retirement plan can hinge on such returns. One simply needs to reap the rewards the stock market is churning out.
But Canadians are being perpetually shortchanged, both by themselves and by the industry.
Most hand their money over to active fund managers, who are supposed to be able to beat the market by picking individual stocks. And most of those managers chronically underperform the market, charging hefty fees in the process.
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This has been the perplexing reality in the Canadian investing community for decades. It’s true this year more than most.
Active managers are lagging the TSX by 3.7 percentage points on the year, up to mid-September, according to data compiled by Morningstar. That may not sound like much, but it represents almost one-fifth of the market’s returns on the year.
Those shortfalls compound over the years and can cost a regular investor hundreds of thousands of dollars in sacrificed gains.
The inability of professional investors to beat the market has been known for a century. Countless studies have since confirmed that poor track record.
The pros in Canada have especially struggled over the last few years, as this stock market rally has gained steam.
In 2025, their slump can largely be chalked up to the run-up in the gold sector. Most managers went into the year light on gold stocks. Morningstar data put the average fund’s weighting in the materials sector at 7.6 per cent. In the S&P/TSX Composite Index, materials account for a 16.9-per-cent share.
That’s a huge problem when the 27 of the top 30 best performing stocks on the year are gold and silver miners.
Before gold, oil was the bane of the active manager.
Most active funds have tilted away from oil and gas in recent years, which backfired when the energy sector began to bolster Canadian stock market returns after 2020.
In a country of hewers of wood and drawers of water, our best investors are apparently resource-shy.
“They’re looking for strong business models, economic moats, things of that nature. And that doesn’t necessarily translate to resources and mining, where the fortunes of those companies can be more or less tied to commodity prices,” said Michael Dobson, a research analyst at Morningstar.
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“But if you’re perpetually underweight these sectors, that is an active bet, and it has hurt them.”
It has also hurt those Canadians with their savings on the line. They could have participated fully in the revival of resource stocks by parking their stock investments in a broad market index fund. These days, you can buy and own such a portfolio virtually for free.
Bafflingly few investors go this route. Passively managed retail funds have a market share of just 19.5 per cent in Canada, as of the end of 2024, according to a PWL Canada report.
Active retail funds in Canada manage $1.8-trillion of investor money, mostly earning below-market returns and charging fees five times higher than passive strategies, on average.
The rest of the world has figured this out. Globally, a movement has built around a strategy that harvests market returns at the lowest possible cost. American investors have more than half of their investment dollars parked in passive funds. Outside North America, passive funds have a market share of 70 per cent.
Canadians still aren’t sold. Make that make sense.