Best mutual funds 2016: Honour Roll

Power your RRSP with the best mutual funds, based on performance, price and safety. Our picks regularly outperform

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by

From the February/March 2016 issue of the magazine.

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In the Canadian equity category, the poor results of commodity-based stocks translated into weakness in other sectors, such as financials. Still, one person’s problem is often another’s opportunity: Lower oil prices and lower interest rates leave more spending money in consumer’s pockets, while the low Canadian dollar encourages exports. As a result, portfolio managers who concentrate on the consumer, technology or industrial (non-oil related) sectors have fared better and will continue to do so, at least for a good part of this year.

Such is the case with Fidelity Canadian Large Cap, a consistent top performer that regularly appears in my fund selections. The actively managed fund has responded to weakness in the energy and materials sectors by emphasizing investments in technology and industrials.

Likewise, Steadyhand Equity has gained from light exposure to resources and from a healthy allocation to U.S. equities, which continue to benefit from the U.S. dollar appreciation. The fund is fairly diversified and operates with a low cost structure and moderate portfolio turnover.

Canadian Equity Funds

Benchmark index: S&P/TSX Composite Index TR, Five-year return: 3.77%

  • Fund Name Fund Name Five-Year Annualized Return Tax Efficiency(1) Current Value of $10,000 Invested Five Years Ago(2) Performance Rating Performance Rating Risk-Adjusted Return (RAR)(3) Consistency Bear Market Performance(4) Risk Rating MER Cost Rating Cost Rating Minimum Investment
    Fidelity Canadian Large Cap Fund Series B Fidelity Canadian Large Cap Fund Series B 14.20% 67% $19,421 5 Stars 5 Stars 19.25% 67% A 4.5 2.30% 3 Stars 3 Stars $500
    Steadyhand Equity Fund Series A Steadyhand Equity Fund Series A 13.21% 91% $18,597 5 Stars 5 Stars 15.71% 70% B 3.5 1.42% 4 Stars 4 Stars $10,000
    Mawer Canadian Equity Fund Series A Mawer Canadian Equity Fund Series A 12.43% 90% $17,967 5 Stars 5 Stars 14.97% 75% B 3.5 1.21% 5 Stars 5 Stars $5,000
    Beutel Goodman Canadian Dividend Fund Class D Beutel Goodman Canadian Dividend Fund Class D 10.86% NA $16,745 5 Stars 5 Stars 13.96% 63% B 4 1.47% 4 Stars 4 Stars $5,000
    Beutel Goodman North American Focused Eq Fd D Beutel Goodman North American Focused Eq Fd D 9.74% 49% $15,917 4 Stars 4 Stars 10.76% 70% B 3.5 1.50% 4 Stars 4 Stars $5,000
    Beutel Goodman Total World Equity Fund Class D Beutel Goodman Total World Equity Fund Class D 9.44% NA $15,697 4 Stars 4 Stars 10.70% 62% C 3 1.49% 4 Stars 4 Stars $5,000
    Dynamic Dividend Fund Series A Dynamic Dividend Fund Series A 9.01% 66% $15,395 4 Stars 4 Stars 13.14% 65% B 4.5 1.59% 4 Stars 4 Stars $500
    FDP Canadian Dividend Equity Portfolio Series A5 FDP Canadian Dividend Equity Portfolio Series A5 8.66% NA $15,151 4 Stars 4 Stars 9.81% 67% C 3 1.23% 5 Stars 5 Stars $1,000
    RBC North American Growth Fund Series D RBC North American Growth Fund Series D 8.24% 74% $14,860 4 Stars 4 Stars 9.47% 67% C 3 1.21% 5 Stars 5 Stars $500
    BMO Dividend Fund Series A BMO Dividend Fund Series A 7.86% 69% $14,600 4 Stars 4 Stars 10.13% 60% B 4 1.80% 4 Stars 4 Stars $500
    Scotia Canadian Dividend Fund Series A Scotia Canadian Dividend Fund Series A 7.81% 73% $14,564 4 Stars 4 Stars 9.86% 67% B 4 1.72% 4 Stars 4 Stars $500
    RBC Canadian Dividend Fund Series D RBC Canadian Dividend Fund Series D 7.68% NA $14,474 4 Stars 4 Stars 9.62% 65% C 3.5 1.21% 5 Stars 5 Stars $500
    Fidelity True North Fund Series B Fidelity True North Fund Series B 7.47% 26% $14,338 4 Stars 4 Stars 9.41% 60% B 4 2.28% 3 Stars 3 Stars $500
    Jarislowsky Fraser Select Canadian Equity Fund Jarislowsky Fraser Select Canadian Equity Fund 7.37% NA $14,268 3 Stars 3 Stars 9.09% 60% C 3.5 2.11% 3 Stars 3 Stars $500
    TD Dividend Growth Class - Investor Series TD Dividend Growth Class - Investor Series 6.69% NA $13,824 3 Stars 3 Stars 7.73% 60% C 3 2.04% 3 Stars 3 Stars $100
    PH&N Canadian Equity Value Fund Series D PH&N Canadian Equity Value Fund Series D 6.45% NA $13,666 3 Stars 3 Stars 7.24% 60% C 3 1.19% 5 Stars 5 Stars $500
    HSBC Dividend Fund Premium Series HSBC Dividend Fund Premium Series 6.20% NA $13,510 3 Stars 3 Stars 7.33% 62% C 3 1.40% 4 Stars 4 Stars $100,000
     

In the U.S. equity category, do not be fooled by the very strong results achieved by some funds over the past year. The results can be attributed to the U.S. dollar appreciation, as the S&P 500 ended 2015 almost flat on a currency-neutral basis. This proves a point I made last year: that diversifying into U.S. equities is important for Canadian investors. For a number of years now, heavy equity market losses have been accompanied by depreciation of the Canadian dollar. I expect the Canadian dollar will remain weak until we see concrete signs of recovery in commodity prices.
As the name suggests, TD U.S. Quantitative Equity uses a data-driven methodology for fund selection, although its behaviour suggests a high degree of similarity with the S&P 500. Still, the combination of low cost and low turnover has helped the fund deliver superior returns for three consecutive years. There is also evidence of some added value from active management.

Both Mawer U.S. Equity and Brandes U.S. Equity operate with the same favourable combination of low cost and low turnover. However, the funds exhibit a high degree of similarity with the S&P 500, thus limiting their ability to beat the index.

U.S. Equity Funds

Benchmark index: S&P 500 TR Index (C$), Five-year return: 20.57%

  • Fund Name Fund Name Five-Year Annualized Return Tax Efficiency(1) Current Value of $10,000 Invested Five Years Ago(2) Performance Rating Performance Rating Risk-Adjusted Return (RAR)(3) Consistency Bear Market Performance(4) Risk Rating MER Cost Rating Cost Rating Minimum Investment
    TD U.S. Quantitative Equity Fund Investor Series TD U.S. Quantitative Equity Fund Investor Series 20.10% 99% $24,987 5 Stars 5 Stars 18.13% 61% A 4 1.59% 4 Stars 4 Stars $100
    Mawer U.S. Equity Fund Series A Mawer U.S. Equity Fund Series A 19.43% 96% $24,301 5 Stars 5 Stars 18.07% 66% C 3 1.22% 5 Stars 5 Stars $5,000
    Brandes U.S. Equity Fund Class L Brandes U.S. Equity Fund Class L 19.12% NA $23,980 5 Stars 5 Stars 17.66% 63% C 3 1.70% 4 Stars 4 Stars $100,000
    Beutel Goodman American Equity Fund Class D Beutel Goodman American Equity Fund Class D 19.00% 84% $23,868 5 Stars 5 Stars 19.52% 57% A 4.5 1.48% 4 Stars 4 Stars $5,000
    Renaissance U.S. Equity Fund Class A Renaissance U.S. Equity Fund Class A 18.66% 100% $23,521 4 Stars 4 Stars 18.06% 63% B 4 1.96% 4 Stars 4 Stars $500
    BMO U.S. Equity Class Classic Series BMO U.S. Equity Class Classic Series 18.29% 90% $23,159 4 Stars 4 Stars 17.29% 60% B 3.5 2.24% 3 Stars 3 Stars $500
    Standard Life U.S. Equity Value Fund E-Series Standard Life U.S. Equity Value Fund E-Series 17.85% 90% $22,730 4 Stars 4 Stars 17.75% 57% B 4 1.96% 4 Stars 4 Stars $100,000

The global equity category is always a mixed bag. American equities typically constitute about half of a fund’s portfolio, so U.S. influence is inevitable. Meanwhile, European equities remain undervalued by historical standards and pay high dividends. That the euro is now cheap adds to the category’s attraction. As for emerging markets, further turbulence is expected, but a careful fund manager should identify bright spots within countries and sectors that benefit from cheap commodity prices. For those reasons, I think global equities currently represent a viable option for adding diversification to your portfolio.

Mawer Global Equity continues to post superior returns with relentless consistency. That the fund experiences less volatility than its peers or the index reflects value added from active management. It also has a low cost structure and low portfolio turnover: The average holding period of a security can be as long as seven years.

Manulife Global Equity Class Advisor Series has posted superior results in each of the past four years. The portfolio’s recent focus has been on financials, technology and health-care stocks. Although the portfolio is similar to the index, there is evidence of value added from active management. The fund’s very low portfolio turnover represents a structural advantage.

Global Equity Funds

Benchmark index: Dow Jones Global TR Index (C$), Five-year return: 14.11%

  • Fund Name Fund Name Five-Year Annualized Return Tax Efficiency(1) Current Value of $10,000 Invested Five Years Ago(2) Performance Rating Performance Rating Risk-Adjusted Return (RAR)(3) Consistency Bear Market Performance(4) Risk Rating MER Cost Rating Cost Rating Minimum Investment
    Mawer Global Equity Fund Series A Mawer Global Equity Fund Series A 17.84% 99% $22,722 5 Stars 5 Stars 19.98% 73% B 4 1.41% 5 Stars 5 Stars $5,000
    Manulife Global Equity Class Advisor Series Manulife Global Equity Class Advisor Series 15.87% 99% $20,884 5 Stars 5 Stars 17.18% 63% B 4 2.47% 3 Stars 3 Stars $500
    Sun Life MFS Global Value Fund Series A Sun Life MFS Global Value Fund Series A 15.85% NA $20,865 5 Stars 5 Stars 17.29% 62% B 4 2.46% 3 Stars 3 Stars $500
    Trimark Fund Series SC Trimark Fund Series SC 15.18% 99% $20,269 4 Stars 4 Stars 16.04% 60% B 3.5 1.71% 5 Stars 5 Stars $500
    RBC Jantzi Global Equity Fund Series D RBC Jantzi Global Equity Fund Series D 14.88% 86% $20,011 4 Stars 4 Stars 14.81% 63% C 3 1.28% 5 Stars 5 Stars $500
    Capital Group Global Equity Fund (Canada) Ser A Capital Group Global Equity Fund (Canada) Ser A 14.56% 100% $19,731 4 Stars 4 Stars 14.81% 62% C 3 2.03% 4 Stars 4 Stars $500
    Fidelity Global Dividend Fund Series B Fidelity Global Dividend Fund Series B 14.05% 97% $19,295 4 Stars 4 Stars 16.47% 57% B 4 2.42% 3 Stars 3 Stars $500
    AGF Global Dividend Fund Mutual Fund Series AGF Global Dividend Fund Mutual Fund Series 13.08% 98% $18,486 3 Stars 3 Stars 15.07% 53% B 4 2.41% 3 Stars 3 Stars $500
    Mackenzie Ivy Foreign Equity Fund Series A Mackenzie Ivy Foreign Equity Fund Series A 12.76% 93% $18,231 3 Stars 3 Stars 15.66% 53% A 5 2.51% 3 Stars 3 Stars $500
    Trimark Global Dividend Class Series T4 Trimark Global Dividend Class Series T4 12.43% NA $17,966 3 Stars 3 Stars 15.15% 53% B 4.5 2.50% 3 Stars 3 Stars $500

In the balanced category, the Manulife Monthly High Income tops the list for the second year in a row with consistent above-average returns. The fund maintains a well-diversified portfolio which contributes to an acceptable down market performance. However, as I mentioned last year, do not misinterpret the generous cash distributions as investment income, given that a large part of that is made of capital gains or return of capital. Actual net income distributions (from interest and/or dividends) remain in the vicinity of 2%.

Another consistent performer from last year’s Honour Roll is Fidelity Monthly Income. Its superior recent results have come on the back of a strong showing by the bond component of its portfolio and exposure to dividend-paying equities. Net investment income distributions have recently averaged 2.5%.

Incidentally, I have personal reservations about balanced funds. On average, most balanced funds retain at least 30% to 40% (and sometimes more) of their portfolio in bonds. I feel that you are paying unnecessarily high fees on this component of your portfolio, and could achieve better results by sticking to a diversified portfolio of stocks and bonds. That said, finding an optimal allocation can be a daunting task for many investors who prefer to outsource the chore to their fund manager. If you do invest in a balanced fund, ensure that it that charges low fees and delivers at least some added value from active management. Fortunately, the Honour Roll’s methodology shortlists funds with those very characteristics.

Canadian Balanced Funds

Benchmark index: Fundata Canadian Balanced Index, Five-year return: 4.33%

  • Fund Name Fund Name Five-Year Annualized Return Tax Efficiency(1) Current Value of $10,000 Invested Five Years Ago(2) Performance Rating Performance Rating Risk-Adjusted Return (RAR)(3) Consistency Bear Market Performance(4) Risk Rating MER Cost Rating Cost Rating Minimum Investment
    Manulife Monthly High Income Fund Advisor Series Manulife Monthly High Income Fund Advisor Series 8.51% NA $15,042 5 Stars 5 Stars 10.03% 65% B 3.5 2.04% 3 Stars 3 Stars $500
    Fidelity Monthly Income Fund Series B Fidelity Monthly Income Fund Series B 7.38% 53% $14,276 4 Stars 4 Stars 9.82% 57% C 3 2.09% 3 Stars 3 Stars $500
    Compass Conservative Balanced Portfolio Series A Compass Conservative Balanced Portfolio Series A 7.37% 69% $14,267 4 Stars 4 Stars 10.27% 72% B 3.5 1.69% 4 Stars 4 Stars $1,000
    Fidelity Income Allocation Fund Series A Fidelity Income Allocation Fund Series A 6.96% 67% $13,996 4 Stars 4 Stars 9.66% 57% A 4 1.99% 3 Stars 3 Stars $500
    FDP Balanced Portfolio Series A5 FDP Balanced Portfolio Series A5 6.40% 56% $13,634 4 Stars 4 Stars 7.23% 67% C 3 1.26% 4 Stars 4 Stars $1,000
    Dynamic Dividend Income Fund Series T Dynamic Dividend Income Fund Series T 6.38% 100% $13,625 4 Stars 4 Stars 7.82% 65% C 3 2.16% 3 Stars 3 Stars $500
    Steadyhand Income Fund Steadyhand Income Fund 6.12% NA $13,457 3 Stars 3 Stars 9.53% 53% A 4.5 1.04% 5 Stars 5 Stars $10,000
    Jarislowsky Fraser Select Income Fund Series E Jarislowsky Fraser Select Income Fund Series E 6.10% NA $13,448 3 Stars 3 Stars 10.29% 55% A 4.5 0.92% 5 Stars 5 Stars $10,000
    BMO Monthly Income Fund Series A BMO Monthly Income Fund Series A 5.95% NA $13,351 3 Stars 3 Stars 7.06% 53% C 3 1.57% 4 Stars 4 Stars $500
    Compass Conservative Portfolio Series A Compass Conservative Portfolio Series A 5.83% 47% $13,273 3 Stars 3 Stars 10.43% 57% A 4.5 1.38% 4 Stars 4 Stars $1,000
    Renaissance Optimal Income Portfolio T6 Renaissance Optimal Income Portfolio T6 5.68% NA $13,179 3 Stars 3 Stars 7.48% 52% C 3 1.95% 3 Stars 3 Stars $500
    TD Advantage Balanced Income Portfolio H TD Advantage Balanced Income Portfolio H 5.60% 41% $13,131 3 Stars 3 Stars 8.30% 52% B 3.5 1.97% 3 Stars 3 Stars $5,000
    SEI Income 40/60 Fund Class S SEI Income 40/60 Fund Class S 5.55% 79% $13,103 3 Stars 3 Stars 7.14% 52% C 3 1.66% 4 Stars 4 Stars $1,000
    Scotia Diversified Monthly Income Fund Series A Scotia Diversified Monthly Income Fund Series A 5.50% 53% $13,067 3 Stars 3 Stars 6.71% 60% C 3 1.46% 4 Stars 4 Stars $500
    National Bank Moderate Strategic Portfolio NR National Bank Moderate Strategic Portfolio NR 5.37% 100% $12,987 3 Stars 3 Stars 7.28% 62% C 3 2.07% 3 Stars 3 Stars $10,000
    Scotia INNOVA Balanced Income Portfolio Series A Scotia INNOVA Balanced Income Portfolio Series A 5.30% 57% $12,943 3 Stars 3 Stars 7.62% 53% C 3 1.94% 3 Stars 3 Stars $50,000
    BMO Asset Allocation Fund Series A BMO Asset Allocation Fund Series A 5.16% 55% $12,863 3 Stars 3 Stars 5.96% 57% C 3 2.12% 3 Stars 3 Stars $500

The Canadian small cap category, characterized by heavy concentration on energy and natural resources, has been among the worst affected over the past year. Only a small group of funds have been able to avoid the carnage with limited losses, and they were the funds that carried the highest exposure to sectors like technology and telecommunications. Such is the case with Pender Small Cap Opportunities, which against all odds managed to end the year with significant gains (unfortunately, the fund is closed to new investments).

Likewise, National Bank Quebec Growth also managed to end the year in positive territory. Bear in mind: By mandate, this fund concentrates on firms that conduct a large portion of their business in Quebec. Given that the province has limited dependence on natural resources, the fund’s exposure to the sector is less than 20% of the portfolio. This is one of several funds in the category (like Mawer, HSBC, BMO Enterprise and Trimark Canadian Endeavour) that periodically feature on the Honour Roll,  another tribute to their superior long-term performance record.

Canadian Small Cap Funds

Benchmark index: BMO Canadian Small Cap Index, Five-year return: -4.88%

  • Fund Name Fund Name Five-Year Annualized Return Tax Efficiency(1) Current Value of $10,000 Invested Five Years Ago(2) Performance Rating Performance Rating Risk-Adjusted Return (RAR)(3) Consistency Bear Market Performance(4) Risk Rating MER Cost Rating Cost Rating Minimum Investment
    Pender Small Cap Opportunities Fund Class A6 Pender Small Cap Opportunities Fund Class A6 19.83% 87% $24,707 5 Stars 5 Stars 27.18% 62% A 4 2.50% 3 Stars 3 Stars $2,500
    National Bank Quebec Growth Fund Adv/ISC National Bank Quebec Growth Fund Adv/ISC 16.72% NA $21,663 5 Stars 5 Stars 28.90% 68% A 4.5 2.49% 3 Stars 3 Stars $500
    Mawer New Canada Fund Series A6 Mawer New Canada Fund Series A6 16.70% NA $21,640 5 Stars 5 Stars 21.84% 72% C 3 1.40% 5 Stars 5 Stars $5,000
    BMO Enterprise Fund Classic6 BMO Enterprise Fund Classic6 15.99% NA $20,990 4 Stars 4 Stars 20.79% 72% C 3 2.06% 4 Stars 4 Stars $500
    HSBC Small Cap Growth Fund Investor Series HSBC Small Cap Growth Fund Investor Series 14.03% NA $19,275 4 Stars 4 Stars 18.56% 68% C 3 2.25% 4 Stars 4 Stars $500
    Fidelity Special Situations Fund Series A Fidelity Special Situations Fund Series A 12.32% 48% $17,874 4 Stars 4 Stars 15.20% 68% C 3 2.50% 3 Stars 3 Stars $500
    Dynamic Real Estate & Infrastructure Income Fund A5 Dynamic Real Estate & Infrastructure Income Fund A5 11.94% NA $17,573 4 Stars 4 Stars 22.09% 53% A 5 2.50% 3 Stars 3 Stars $150,000
    Manulife Canadian Focused Fund Advisor Series Manulife Canadian Focused Fund Advisor Series 9.96% NA $16,072 4 Stars 4 Stars 13.26% 60% C 3 2.32% 3 Stars 3 Stars $500
    CI Can-Am Small Cap Corporate Class A CI Can-Am Small Cap Corporate Class A 9.07% NA $15,432 3 Stars 3 Stars 17.70% 52% B 5 2.42% 3 Stars 3 Stars $500
    Trimark Canadian Endeavour Fund Series A Trimark Canadian Endeavour Fund Series A 9.02% NA $15,400 3 Stars 3 Stars 13.04% 53% C 3 2.21% 4 Stars 4 Stars $500
    RBC O'Shaughnessy All-Canadian Equity Fund D RBC O'Shaughnessy All-Canadian Equity Fund D 8.82% NA $15,258 3 Stars 3 Stars 14.03% 58% C 3 1.21% 5 Stars 5 Stars $500
    Fidelity Greater Canada Fund Series B Fidelity Greater Canada Fund Series B 7.67% NA $14,472 3 Stars 3 Stars 12.47% 52% B 4 2.36% 3 Stars 3 Stars $500

How to use these tables

Overall ratings in each category go from one star (poor) to five stars (excellent). Any Honour Roll fund is a good buy, but some may be better for you than others. For instance, if you’re investing outside an RRSP, pay particular attention to “Tax Efficiency.” This measures how much of the return on a fund has been lost to taxes on distributions. (Funds that don’t distribute cash don’t lose anything and so are rated at 100%.) In general, the higher this number, the better for funds held in taxable accounts. All investors should consider risk as well. “Risk-Adjusted Return” shows how much return each fund has achieved in proportion to its risk—again, the higher, the better. If you want to play it safe, look for funds with a high “Consistency” rating (which shows the percentage of months in which a fund has performed better than its peers) and strong “Bear Market Performance” (the best funds get ‘A’s and so on, down to ‘E’s).

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1 Tax efficiency estimates the percentage of total returns retained by investors, assuming a 46% tax rate for interest income, 25% for capital gains and 23% for dividends. Not applicable for RRSP investors

2 Based on five years’ historical return, before sales charges and commissions

3 For details on risk-adjusted return calculation, check moneysense.ca or fundscope.ca

4 Based on average monthly
loss during market corrections

5 Restricted/may not be sold in all provinces

6 Closed for new investors, check availability of other versions

Sources: Fundata Canada Inc. & FundScope Limited  November 2015

3 comments on “Best mutual funds 2016: Honour Roll

  1. While investors are able to get fixed income exposure through a balanced fund, it would have been nice to see a list solely for bond funds despite rates being low.

    Reply

  2. I’m finding the information on specific mutual funds is missing when I’m looking at investing in them. For example the Fidelity Canadian Large Cap Fund Series B shows a minimum of $1000 investment whereas the table shows $500. Admittedly there seem to be a number of options when looking like front end, back end, etc. It would be useful to have the specific identifier like they have for stocks. I’m having the same issue with Manulife Monthly High Income Fund Advisor Series. There appear to be abut 6 different codes that are similarly named.

    Reply

    • P: it depends on what kind of account you have. If you pay an advisor, you can get I or F funds. Normal self directed accounts get you class A. If you use RBC Direct Investing, class D. Of course, if you have millions, call the manager directly and escape most of the MER and charges.

      Reply

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