By Seven Hills Capital Corp.
The investment industry thrives on complexity. Every year, new funds and flashy strategies are rolled out, often accompanied by compelling stories, slick branding, and the promise of superior returns. But behind the curtain, a quieter, more sobering truth persists - most active managers dont beat the market, and the odds are overwhelmingly stacked against them.
According to the SPIVA (S&P Indices Versus Active) reporta gold-standard study tracking the performance of actively managed fundsover 94% of Canadian equity fund managers underperformed the S&P/TSX Composite Index over a 10-year period. In the U.S., its even worse: more than 95% of large-cap active managers underperformed the S&P 500 over 20 years. These numbers arent opinions; theyre hard data, updated annually by S&P Global.
Warren Buffett once summed it up simply: Buy an S&P 500 index fund and keep adding to it over time. He famously bet $1 million that a basic S&P 500 ETF would outperform a handpicked basket of hedge funds over 10 years. He won.
So why does the industry keep selling complexity? Because its good for business. New products attract new capital. Stories about next-generation AI funds or emerging market disruptors sound excitingand they often are. But excitement isnt a strategy. And its certainly not a system.
What drives real returns is asset allocation, not stock picking, not market timing, and not the latest trend. According to research published in the Financial Analysts Journal, over 90% of the variability in long-term portfolio returns is explained by asset allocation. In other words, what you own (your mix of stocks, bonds, alternatives, etc.) matters far more than which specific investments you pick.
Thats why the core of our investment philosophy at Seven Hills is simple: own the indexes at the centre of your equity portfolio. Low cost, tax efficient, and backed by decades of data. Then, season the portfoliotactically adding satellite strategies where risk-adjusted opportunities exist.
Alternatives like private credit, infrastructure, real assets, and market-neutral strategies are essential for true diversification. But theyre complex, and often inaccessible without professional guidance. These uncorrelated assets are not about chasing returns; theyre about hedging equity risk, smoothing volatility, and preserving capital in uncertain markets.
The irony is this: the worlds most sophisticated investors - pension funds, endowments, and sovereign wealth fundsstick to the basics. They dont chase hype. They use the data. They diversify through asset allocation. And they lean on alternatives to reduce correlation and enhance long-term outcomes.
Meanwhile, the average retail investor is lured in by excitement and salesmanshipoverlooking the brilliance of simplicity and the power of probability.
At Seven Hills, we build portfolios like pension funds do - anchored in evidence, seasoned with insight, and managed with discipline. And as fiduciaries, our only incentive is to help you succeed.
So the next time someone offers you the next big idea, ask them for their 10-year track recordbecause the numbers dont lie: 9 out of 10 managers underperform over time.
