The Globe and Mail

WHAT ARE WE LOOKING FOR?

Giant Canadian stock funds that are not slugs. It can be tougher to generate strong returns with a fat wad of cash compared with smaller and more nimble funds that can flit in and out of stocks.

TODAY’S SEARCH

We focus on the annualized returns of the 20 largest Canadian stock funds to see if they have been able to beat the S&P/TSX composite index over three years. We also throw in the five-year number for further comparison.
This group includes Canadian equity funds, which must be at least 70 per cent invested in domestic firms, and Canadian “focused” equity funds, which can have up to 50 per cent in foreign stocks. The latter category was created after Ottawa lifted the 30-per-cent foreign content limit in 2005.

SO WHAT DO WE TURN UP?

While investors have a love affair with these big funds, many had trouble beating the index over three and five years. The few that did lick the benchmark over the longer period included two bank funds, which investors can get at their local branch.
The $3.23-billion TD Canadian Equity Fund co-managed by John Smolinski and Scott Margach turned up on top of the heap over three and five years. The $5.28-billion RBC Canadian Equity Fund run by Warner Sulz also beat the benchmark for five years.
It’s interesting to see how Gerry Coleman, who runs the $5.27-billion CI Habour Fund, and former partner Jerry Javasky, who manages the $3.59-billion Mackenzie Ivy Canadian Fund, have parted company in more ways than one.
The veteran managers have a similar value-oriented, buy-and-hold investment style. They used to run money together at the former United Financial Management Ltd., and co-managed Mackenzie Ivy Canadian before Mr. Coleman jumped ship in 1997 to join CI Investments Inc. to start the Harbour funds.
Mr. Coleman’s fund beat the index with a 19.4-per-cent return over three years, and marginally underperformed the benchmark with a 15.74-per-cent return over five years.
But Mr. Javasky’s fund, which typically holds few resource stocks and is unhedged in this version, has dramatically underperformed the index. It sits at the bottom of the heap, eking out a 5.07-per-cent return over three years, and 6.14 per cent over five years.
During these years of robust Canadian markets, Ivy Canadian investors have been paying fat fees for returns that are only slightly better than short-term Treasury bills. They would have been better off in a no-brainer index fund.

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