In the mutual fund industry, you don't have to be good to be big.
We have looked at 25 of the most widely held Canadian equity funds and found that it would be a serious mistake to assume that a big fund is a good fund.
There are actually some great stories among the largest Canadian equity funds, and why not? You'd expect a fund company to deploy its smartest people and deepest resources on its most widely held funds. There's no better marketing strategy in the world.
And yet, the Top 25 list clearly shows you can be wretchedly bad and big, too.
How investors and their investment advisers came to choose these particular funds is the big mystery.
Our analysis of Canadian equity funds covers only a small slice of the 350 or so products available to investors.
Yet this group accounts for about $57.6-billion in assets, or a little more than $5 of every $10 invested in this fund category.
The methodology:
Our system of rating funds generally rewards funds for generating strong, consistent returns and protecting investor capital over the past five years, and for operating frugally. The results are not meant as definitive "buy" or "sell" indicators, but rather a means for helping investors decide if their faith in a big fund is justified.
To assess the 25 biggest funds in the Canadian equity category, we used data on the Globefund.com website to develop a point system that rewarded strong, steady returns and low management expense ratios.
Looking at 2004 and the previous four years, we awarded one point for annual returns that were in the first quartile, or top 25 per cent of funds in a particular category, and half a point for annual second-quartile returns. Top score in this aspect of the analysis is five.
Next, we looked at compound average annual returns for the five- and three-year periods ended Sept. 30. We awarded three points for a five-year return above the category average, and one point for above-average three-year returns. The best possible score in this part of the analysis is four.
The next step was to award a point for a management expense ratio below the average of the 25 funds and deduct a point for an above-average MER. Then, we deducted a point for every year in the past five that a fund lost money.
A perfect score is 10, but the closest any fund came to that is the score of eight earned by Trimark Canadian Endeavour. Tough competition pushed some funds down in the rankings despite solid results.
Trimark Cdn. Endeavour
Assets: $1.6-billion.
Management expense ratio (MER): 2.14 per cent**
Three-year compound average annual return: 12.70 per cent***
Five-year compound average annual return: 9.92 per cent****
Number of Years in Quartile*
1st: 3 years
2nd: 2 years
3rd: -
4th: -
Money-losing years: 1.
Score: 8 out of 10.
Comments: An ideal package of consistently above-average returns, good capital protection and a comparatively low MER.
CI Cdn. Investment
Assets: $2.5-billion.
MER: 2.45 per cent.
Three-year compound average annual return: 11.36 per cent.
Five-year compound average annual return: 11.78 per cent.
Number of years in quartile
1st: 4.
2nd: -
3rd: 1.
4th: -
Money-losing years: 0.
Score: 7.
Comments: Fat returns from a fund with a conservative approach that saved unitholders from money-losing years during the bear market.
Mackenzie Cundill Cdn. Security
Assets: $1.4-billion.
MER: 2.55 per cent.
Three-year compound average annual return: 11.2 per cent.
Five-year compound average annual return: 8.62 per cent.
Number of years in quartile
1st: 3.
2nd: 2.
3rd: -
4th: -
Money-losing years: 0.
Score: 7.
Comments: Killer consistency, plus no down years in the past five.
MD Equity
Assets: $2.1-billion.
MER: 1.44 per cent.
Three-year compound average annual return: 11.03 per cent.
Five-year compound average annual return: 9.42 per cent.
Number of years in quartile
1st: 2.
2nd: 3.
3rd: -
4th: -
Money-losing years: 2.
Score: 6.5.
Comments: The medical profession has a good one here.
CI Harbour
Assets: $2.48-billion.
MER: 2.49 per cent.
Three-year compound average annual return: 8.4 per cent.
Five-year compound average annual return: 9.55 per cent.
Number of years in quartile
1st: 4.
2nd: -
3rd: -
4th: 1.
Money-losing years: 1.
Score: 6.
Comments: Another example of money being managed conservatively and well.
CI Signature Select Cdn.
Assets: $2-billion.
MER: 2.49 per cent.
Three-year compound average annual return: 9.53 per cent.
Five-year compound average annual return: 14.03 per cent.
Number of years in quartile
1st: 3.
2nd: 1.
3rd: 1.
4th: -
Money-Losing Years: 1.
Score: 5.5.
Comments: CI's three big Canadian Equity funds are all clustered at the top end of this rating.
Dynamic Power Cdn. Growth
Assets: $1.1-billion.
MER: 2.07 per cent
Three-year compound average annual return: 13.25 per cent.
Five-year compound average annual return: 11.7 per cent.
Number of years in quartile
1st: 2.
2nd: 1.
3rd: 1.
4th: 1.
Money-losing years: 2.
Score: 5.5
Comments: A ripping good fund in strong market years, but vulnerable when markets tank.
RBC Cdn. Equity
Assets: $3.5-billion.
MER: 2.07 per cent.
Three-year compound average annual return: 9.59 per cent.
Five-year compound average annual return: 7.58 per cent.
Number of years in quartile
1st: 2.
2nd: 1.
3rd: 2.
4th: -
Money-losing years: 2.
Score: 5.5.
Comments: Competent fund management as close as your nearest Royal Bank of Canada branch.
TD Cdn. Blue Chip Equity
Assets: $934-million.
MER: 2.43 per cent.
Three-year compound average annual return: 7.51 per cent.
Five-year compound average annual return: 9.88 per cent.
Number of years in quartile
1st: 3.
2nd: 1.
3rd: 1.
4th: -
Money-losing years: 1.
Score: 5.5
Comments: Nothing exotic here, just an easy-to-buy bank fund that does the job.
TD Cdn. Equity
Assets: $1.9-billion.
MER: 2.28 per cent.
Three-year compound average annual return: 9.45 per cent.
Five-year compound average annual return: 6.80 per cent.
Number of years in quartile
1st: 2.
2nd: 1.
3rd: 2.
4th: -
Money-Losing Years: 2.
Score: 5.5.
Comments: TD Canadian Blue Chip looks like the better choice despite the higher MER.
Trimark Select Cdn. Growth
Assets: $3.6-billion.
MER: 2.38 per cent.
Three-year compound average annual return: 9.50 per cent.
Five-year compound average annual return: 7.78 per cent.
Number of years in quartile
1st: 2.
2nd: 2.
3rd: 1.
4th: -
Money-losing years: 1.
Score: 5.
Comments: Solid.
Investors Cdn. Large Cap
Assets: $1.9-billion.
MER: 2.75 per cent.
Three-year compound average annual return: 6.77 per cent.
Five-year compound average annual return: 7.69 per cent.
Number of years in quartile
1st: 2.
2nd: 2.
3rd: -
4th: 1.
Money-losing years: 1.
Score: 4.
Comments: The star among the three Investors Group funds in this list, but then the other two are junk.
Mackenzie Ivy Cdn.
Assets: $5.1-billion.
MER: 2.51 per cent.
Three-year compound average annual return: 4.56 per cent.
Five-year compound average annual return: 6.76 per cent.
Number of years in quartile
1st: 3.
2nd: -
3rd: -
4th: 2.
Money-losing years: 1.
Score: 4.
Comments: The biggest Canadian equity fund of them all has been kind of rubbery lately, although it has a fine long-term record (disclosure: I own some).
Fidelity Cdn. Growth
Assets: $2.1-billion.
MER: 2.53 per cent.
Three-year compound average annual return: 9.81 per cent.
Five-year compound average annual return: 8.4 per cent.
Number of years in quartile
1st: 1.
2nd: 3.
3rd: 1.
4th: -
Money-losing years: 2.
Score: 3.5.
Comments: Goes after stocks with above-average growth potential, with reasonable, although not wonderful, results.
Fidelity True North
Assets: $2.9-billion.
MER: 2.56 per cent.
Three-year compound average annual return: 7.89 per cent.
Five-year compound average annual return: 8.83 per cent.
Number of Years in Quartile
1st: 1.
2nd: 3.
3rd: 1.
4th: -
Money-losing years: 2.
Score: 3.5.
Comments: The marquis Canadian equity fund for Fidelity delivers unflashy consistency.
Fidelity Cdn. Disciplined Equity
Assets: $1.4-billion.
MER: 2.55 per cent.
Three-year compound average annual return: 10.54 per cent.
Five-year compound average annual return: 10.43 per cent.
Number of years in quartile
1st: 1.
2nd: 2.
3rd: 2.
4th: -
Money-losing years: 2.
Score: 3.
Comments: Nice returns, but not the smoothest ride.
Trimark Cdn.
Assets: $1.5-billion.
MER: 1.64 per cent.
Three-year compound average annual return: 7.34 per cent.
Five-year compound average annual return: 6.11 per cent.
Number of years in quartile
1st: 1.
2nd: 3.
3rd: 1.
4th: -
Money-losing years: 1.
Score: 2.5.
Comments: An eminent veteran that doesn't measure up to the best in class right now.
AGF Cdn. Large Cap Dividend
Assets: $2.4-billion.
MER: 1.92 per cent.
Three-year compound average annual return: 8.19 per cent.
Five-year compound average annual return: 6.33 per cent.
Number of years in quartile
1st: 2.
2nd: 2.
3rd: 1.
4th: -
Money-losing years: 2.
Score: 3.
Comments: The low MER and excellent long-term results are the attraction here.
BMO Equity
Assets: $1.5-billion.
MER: 2.41 per cent.
Three-year compound average annual return: 8.68 per cent.
Five-year compound average annual return: 8.02 per cent.
Number of years in quartile
1st: 1.
2nd: 1.
3rd: 3.
4th: -
Money-losing years: 2.
Score: 2.5.
Comments: You can do better.
Mackenzie Univ. Cdn. Growth
Assets: $1.3-billion.
MER: 2.52 per cent.
Three-year compound average annual return: 7.38 per cent.
Five-year compound average annual return: 7.04 per cent.
Number of years in quartile
1st: 1.
2nd: 3.
3rd: -
4th: 1.
Money-losing years: 2.
Score: 2.5.
Comments: With so many better choices, it's hard to see the attraction here.
AGF Cdn. Stock
Assets: $2.1-billion.
MER: 2.49 per cent.
Three-year compound average annual return: 6.79 per cent.
Five-year compound average annual return: 9.64 per cent.
Number of years in quartile
1st: 1.
2nd: 2.
3rd: 2.
4th: -
Money-losing years: 2.
Score: 2.
Comment: Long term, the numbers look better.
Investors Cdn. Equity
Assets: $2.3-billion.
MER: 2.75 per cent.
Three-year compound average annual return: 6.65 per cent.
Five-year compound average annual return: 5.65 per cent.
Number of years in quartile
1st: -
2nd: 3.
3rd: 2.
4th: -
Money-losing years: 2.
Score: -1.5.
Comments: If you own this fund, call up your IGM Financial adviser and demand to know why.
Investors Summa
Assets: $2.1-billion.
MER: 2.75 per cent.
Three-year compound average annual return: 4.03 per cent.
Five-year compound average annual return: 4.14 per cent.
Number of years in quartile
1st: -
2nd: 2.
3rd: 1.
4th: 2.
Money-losing years: 2.
Score: -2.
Comments: A socially responsible equity fund, not that this is an excuse.
AIC Diversified Canada
Assets: $2.9-billion.
MER: 2.43 per cent.
Three-year compound average annual return: 3.38 per cent.
Five-year compound average annual return: 5.44 per cent.
Number of years in quartile
1st: 1.
2nd: 1.
3rd: 1.
4th: 2.
Money-losing years: 3.
Score: -2.5
Comments: Holds a lot of nice companies that lately haven't jelled into a fund worth owning.
AIC Advantage
Assets: $1.6-billion.
MER: 2.42 per cent.
Three-year compound average annual return: 0.14 per cent.
Five-year compound average annual return: 2.10 per cent.
Number of years in quartile.
1st: 1.
2nd: -
3rd: 2.
4th: 2.
Money-losing years: 3.
Score: -3
Comments: A onetime fund industry superstar gone shockingly wrong. I'm glad I sold mine.
*Quartiles divide funds by returns into four segments, with first-quartile results being best.
**Compared with the big fund average of a 2.36-per-cent MER.
***Compared with the category average of 7.52 per cent.
****Compared with the category average of 6.38 per cent.
© The Globe and Mail
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