First-time FundGrade A+® Award contenders for 2019

October 17, 2019

Every year in January Fundata Canada Inc. announces the winners of the Fundata FundGrade A+® Awards for the previous year. The Award is given annually to investment funds and managers who have shown consistent, outstanding, risk-adjusted performance throughout the year, and is designed to provide investors, advisors, and fund managers with a single, reliable, easy-to-understand fund-performance rating based on up to 10 years of history. A total of 274 Canadian investment funds received the A+ Award in 2018, and 2019 is shaping up to be another year of blockbuster performance from Canada’s top mutual funds and ETFs.

We are three quarters of the way through 2019 and despite all the negative headlines about slowing global growth, trade wars, and ongoing political drama, markets are holding up fairly well. In fact, on average, all fund categories are up this year except for the lowly Preferred Share Fixed Income funds. Not only are they up, but almost half of the categories have posted double-digit returns thus far. This is in stark contrast to 2018 when only six of 48 categories managed a positive return, and none gained more than 2%.

The table below shows the top-performing categories as of September 30, 2019.

Other notable turnarounds include Canadian Dividend & Income Equity and Canadian Focused Small/Mid Cap funds. Both categories are up around 15% this year after losing 7% and 11% last year.

With the 2019 Fundata FundGrade A+ Awards presentations only three months away, let’s take a look at some of the top-performing funds that may be in line for their first award.

In the Canadian Equity category, CI First Asset MSCI Canada Quality lndex ETF (TSX: FQC) debuted in May 2016 and has been a top-performing fund ever since. It has the highest 3-year average annual compounded rate of return in the category, at 10.5%, while posting a lower-than-average standard deviation (SD). Year to date (YTD) to Sept. 30, FQC is up 22%. This ETF tracks the MSCI Canadian Quality Index, which holds just 25 Canadian companies chosen based on a quality score that considers return on equity, stability of earnings growth, and financial leverage. Top holdings currently include Magna International Inc., Intact Financial Corp., and Kirkland Lake Gold Ltd.

This ETF has a management fee of 60 basis points (bps) and an MER of 1.01%, both relatively high for an index-tracking ETF. But so far, the fees have been justified based on the outstanding risk-adjusted performance. Barring a sudden and dramatic fall from grace, FQC will be hoisting an A+ Award in its first year of eligibility.

At the other end of the spectrum, BMO Dividend Class has been around for almost 15 years and has never made the cut for an A+ Award. It will be looking to change that if it can retain its monthly FundGrade A status for remainder of 2019. This fund has the fifth-best 5-year average annual compounded return in the Canadian Dividend & Income Equity category, at 7.5%, and is up 21.4% year to date.

The managers, Philip Harrington and Lutz Zeitler of BMO Asset Management Inc., use a bottom-up approach to identify attractively priced, dividend-yielding common and preferred shares of Canadian companies. Top holdings include three of the Big Six banks (Royal Bank of Canada, Toronto-Dominion Bank, and Bank of Nova Scotia), as well as Brookfield Asset Management Inc., and Canadian National Railway Co. Financial Services make up over one third of the portfolio, and cash sits at over 10%. The A series has an MER of 1.82%.

Last, but not least, we have Mackenzie US All Cap Growth Fund. This fund started in 1995 and is vying for its first FundGrade A+ Award. Over the past 10 years, it has been a top performer in the U.S. Equity category, placing in the first quartile over 1-, 3-, 5-, and 10-year periods. Year to date, it is up over 20%, handily beating the category average of 15%.

The portfolio is managed by Richard Bodzy of Putnam Investments Inc. Previously, the fund had a large-cap mandate but now has the flexibility to invest in companies of any size. However, the portfolio is still tilted heavily towards large caps, with Fundata’s equity style analysis showing it at over 92% large cap growth stocks. This is also evident when looking at the top holdings, which include behemoths Microsoft Corp., Amazon.com Inc., Apple Inc., and Alphabet Inc. The holdings are fairly concentrated, with the top 10 making up around 37% of the portfolio and about one third of the fund is invested in the tech space.

Mackenzie US All Cap Growth Fund is available in a variety of different load options. The A series has an MER of 2.53%, well above the average compared with its peers.

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