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number cruncher

What are we looking for?

Lower-cost actively managed ETFs

The screen

As I wrote in my column last month, the Canadian ETF landscape has shifted considerably, with traditional passively managed or indexed products now making up a minority of exchange-traded funds, with the remainder being actively managed (either through individual security selection, or in the case of balanced products, through active asset allocation). Most readers know that active management comes at a cost to the investor through higher fees. Despite this, Morningstar’s data shows that roughly 84 per cent of assets across Canadian-domiciled retail investment products (mutual funds and ETFs) are being managed actively. This is in considerable contrast to the United States, where only about 54 per cent of assets are managed actively – a figure that has trended downward over the last decade. Whether it be Canadians’ propensity to stick with what they know, the cyclical nature of Canadian markets, or quite simply the products being sold by advisers, Canadians seem to remain actively invested across asset classes. Today I seek to find actively managed ETFs that have lower-than-average fees while managing to outperform their category peers (which include active and passive mutual funds and ETFs). To do this, I used Morningstar Direct to screen for Canadian-listed ETFs that:

  • Are actively managed (either by security selection or asset allocation)
  • Have received a Morningstar Rating for Funds of five out of five stars. This rating is an objective look-back at the risk-adjusted after-fee performance of the fund, relative to its category peers. The rating considers the last 10 years of performance history, if available, and puts emphasis on the past three years. Our data shows that although the star ratings are backwards-looking, funds that have received five stars as a group outperform those that have received four stars, three stars, etc. in periods after receiving the rating. In other words, it’s more likely that a fund manager with a track record of outperforming peers will continue to outperform in the future, as compared to those that have historically underperformed peers.
  • Have received a Morningstar Medalist Rating of gold, silver, or bronze, identifying funds that Morningstar believes will produce excess after-fee returns in the future, based on our analysis of people (quality of the management team), parent (stewardship of the fund company) and process (robustness of investment decision making).

I then sorted this list on their fees, or management expense ratios (from cheapest to most expensive).

What we found

Strong performing actively managed ETFs

NameMorningstar CategoryTickerMER (%)Morningstar Rating OverallMorningstar Medalist RatingTotal Ret YTD (%)Total Ret 1 Yr (%)Total Ret Annlzd 3 Yr (%)Total Ret Annlzd 5 Yr (%)Total Ret Annlzd 10 Yr (%)Inception Date
Balanced ETFs
Vanguard Growth ETF PortfolioGlobal Equity BalancedVGRO-T0.245 StarsSilver-0.069.954.858.352018-01-25
iShares ESG Conservative Bal ETF PortGlobal Fixed Income BalancedGCNS-T0.255 StarsSilver-0.118.422.272020-09-02
Fidelity Global Monthly High Income ETFGlobal Neutral BalancedFCGI-T0.625 StarsSilver-0.195.525.092020-01-16
Equity ETFs
Dynamic Active Canadian Dividend ETFCanadian Dividend & Income EquityDXC-T0.845 StarsGold0.335.4910.8111.962017-01-20
BMO Low Volatility Canadian Equity ETFCanadian EquityZLB-T0.395 StarsBronze0.415.0910.149.9410.212011-10-21
Horizons Active Global Dividend ETF CommGlobal EquityHAZ-T0.785 StarsSilver1.3716.2911.2912.1010.402010-07-20
Bond ETFs
Mackenzie Core Plus Cdn Fxd Inc ETFCanadian Fixed IncomeMKB-T0.455 StarsBronze-1.711.29-2.941.392016-04-19
Dynamic Active Investment Grd Flt Rt ETFCanadian Short Term Fixed IncomeDXV-T0.335 StarsGold0.155.932.462.842018-03-26
Horizons Active Ultra-Shrt Trm IG Bd ETFCanadian Short Term Fixed IncomeHFR-T0.465 StarsBronze0.146.982.463.012.362010-12-10
PIMCO Global Short Maturity (Cnd) ETF SrGlobal Fixed IncomePMNT-T0.395 StarsSilver0.335.531.842019-02-01
PIMCO Managed Conservative Bond Pool ETFGlobal Fixed IncomePCON-T0.635 StarsBronze-0.094.480.262020-02-14
PIMCO Low Duration Mly Inc (Cnd) ETF SrGlobal Fixed IncomePLDI-T0.815 StarsBronze0.354.911.562019-02-08
PIMCO Monthly Income ETFMulti-Sector Fixed IncomePMIF-T0.845 StarsSilver0.095.590.772.552017-09-29
Dynamic Active Preferred Shares ETFPreferred Share Fixed IncomeDXP-T0.665 StarsGold4.215.215.645.342017-01-20

Source: Morningstar Direct | Data as of Jan 16, 2024

The funds that qualified in the screen are listed in the table accompanying this article, alongside their MERs, historical performance, inception dates, and ratings. The list is first sorted by the broad asset class exposure (equities, fixed income or allocation), then by the specific category to which each fund belongs.

Of note are the set of balanced ETFs which Morningstar would consider active in that the portfolio manager decides on the broad asset allocation, but gain exposure to asset classes via low-cost indexes. Given their low MERs and broad exposures, these products might be a reasonable fit for DIY investors looking to access global markets without the added cost of financial advice. As always, readers are urged to consider the category to which each ETF belongs since ratings are relative to these category peers.

This article does not constitute financial advice, it is always recommended to conduct one’s own independent research before buying or selling any of the funds or ETFs mentioned in this article.

Ian Tam, CFA, is director of investment research for Morningstar Canada.

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