Active funds hit a 20-year performance low as gold prices soared and left underweighted portfolios in the dust
The Canadian equity landscape underwent a dramatic transformation in 2025, as a historic surge in gold prices created a "Golden Year" that most active managers failed to capture.
According to a new report from Morningstar, the precious metal’s meteoric rise left fundamental, value-oriented managers staring at a significant performance gap compared to the broader market.
Gold prices shattered decades-old records in 2025, climbing 67% in U.S. dollar terms to reach US$4,368 and for those measuring in local currency there was a 59% return, marking its strongest calendar-year performance since 1979.
Mining operations gained along with bullion and Canadian gold equities saw returns leap to double the gain of the metal itself, as revenues jumped while fixed costs remained stable, causing industry net margins to more than triple over the year.
But the report reveals a widespread struggle of active Canadian equity funds to keep pace with the Morningstar Canada Index with several sobering statistics:
- Historic Lows: Just one in 10 active funds managed to outperform the index in 2025, the lowest success rate in over 20 years
- Deep Shortfalls: The median Canadian equity fund trailed its benchmark by a substantial 6.8%
- The Underweighting Trap: Entering the year, roughly 80% of active Canadian equity funds were underweight gold industry stocks relative to the index
“A persistent underweighting to gold—during an exceptional gold rally and within a gold-heavy market—explained Canadian active equity funds' widespread underperformance,” the report states.
The performance divide was largely dictated by investment philosophy with systematic and momentum-driven strategies often outpaced their peers by leaning into the rally and adding gold exposure as quantitative price signals strengthened throughout the year. In contrast, fundamental value managers often stayed on the sidelines, viewing gold stock valuations as increasingly difficult to justify.
By the end of December, the median Canadian gold stock traded at a Quantitative Price to Fair Value ratio of 1.86, a massive premium compared to the broader index median of 1.02.
The unique composition of the domestic market amplified these effects. Canada serves as the primary global hub for gold companies, with roughly half of the world's listed miners domiciled or listed here. This concentration ensures that gold price swings impact Canadian stocks with an intensity rarely seen in other developed markets.
Barrick Mining alone surged 171.5% in 2025, contributing 2.0 percentage points to the total index return. For many managers, the simple decision to own or avoid a handful of these heavyweights dictated their relative success for the entire year.
Morningstar Director of Manager Research Kimberly Hart emphasizes that while forecasting gold’s next move is difficult, the episode provides enduring lessons: “Market structure can heavily shape returns, and understanding what truly drives performance is far more informative than the headline result alone.”
