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What are we looking for?

Value or growth? ETF and mutual fund winners with opposing style biases.

The screen

When it comes to fundamental investment styles, investors are often presented with two opposing ideas: the concept of value – buying securities that are underpriced, based on the fair value of a stock; and the concept of growth – buying companies that are quickly increasing earnings or that appear to have potential new income streams. Today, we look for examples of investment funds that showcase either of these styles that have outperformed their category peers. To start the search, I screened the 1,800 or so Canadian-domiciled ETFs and DIY mutual funds (those that are sold via discount brokerages and come without a bundled advice fee) for the following metrics:

  • A four- or five-star Morningstar Rating for Funds (also known as the “star” rating), indicating that the fund has historically outperformed respective category peers after fees, on a risk-adjusted basis. Our data show that although the star ratings are based on past performance, 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 with those that have historically underperformed peers.
  • A Morningstar Medalist Rating of gold, silver or bronze, which identifies 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).

Given that the fund investment style is largely applicable to equity funds, I limited the search for funds that invest primarily in U.S. equities, an efficient market where new information is quickly reflected in a stock’s price. I then turned my attention to Morningstar’s Factor Profile – a holdings-based analysis that allows investors to understand exposures to investing style (value/growth), yield, momentum, quality, volatility, liquidity and size. Here, I homed in on the style factor, which is a standardized score from 0 to 100 that indicates the funds’ value or growth tilt. (Lower scores indicate a greater growth tilt.) Experienced investors will quickly recognize this analysis as an extension of the renowned Morningstar Style Box introduced in 1992 to help investors quickly understand an investment’s characteristics.

What we found

Funds for value or growth

RankNameTickerActive/PassiveMER (%)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 (%)Total Ret Annlzd 15 Yr (%)Inception DateFactor Profile - StyleMax Drawdown 2007-01-01 to 2012-12-31 CADMax Drawdown 2019-08-01 to 2023-07-31 CAD
10 funds with the heaviest tilt to growth
1iShares NASDAQ 100 ETF (CAD-Hedged)XQQ-TPassive0.394 StarsSilver38.2410.8510.0614.3416.885/3/20119.13-33.68
2TD NASDAQ Index - ePassive0.484 StarsBronze36.628.889.3814.1016.7313.8811/26/19999.51-42.78-33.71
3Invesco NASDAQ 100 ETF CADHQQC-F-TPassive0.204 StarsBronze36.919.129.9414.5917.106/8/20119.75-33.48
4Horizons NASDAQ-100® ETFHXQ-U-TPassive0.284 StarsBronze38.5218.5811.9016.524/19/20169.76-28.10
5BMO NASDAQ 100 Equity Hedged to CAD ETFZQQ-TPassive0.394 StarsSilver36.728.719.6014.2816.921/19/20109.84-33.74
6RBC Life Science & Technology Fund DActive1.225 StarsSilver28.4018.5010.7314.0318.2014.337/3/200712.11-24.85
7PH&N U.S. Growth Fund DActive1.024 StarsGold19.3414.4210.5211.4413.4410.359/30/199223.55-26.79-21.92
8Canoe Defensive U.S. Equity Port Cl DActive1.514 StarsSilver11.0411.6111.353/8/201923.86-15.63
9BMO MSCI USA High Quality ETFZUQ-TStrategic Beta0.334 StarsBronze24.3016.7611.3613.6111/5/201425.59-23.04
10BMO MSCI USA ESG Leaders ETFESGY-TPassive0.234 StarsBronze17.8410.5812.171/15/202027.10
10 funds with the heaviest tilt to value
39Vanguard US Dividend Appreciation ETFVGG-TStrategic Beta0.304 StarsGold7.068.3110.2910.9113.628/2/201372.73-14.42
40RBC U.S. Dividend Fund DActive1.054 StarsGold10.0110.4111.2810.0712.949.897/3/200773.72-15.09
41PH&N U.S. Dividend Income Fund DActive1.034 StarsGold10.1210.4511.4010.1612.4310.137/8/200274.00-31.42-15.01
42TD Dow Jones Industrial Avg Index - ePassive0.314 StarsBronze6.049.499.888.9813.5211.2511/26/199979.07-22.48-17.07
43Beutel Goodman American Equity Class DActive1.494 StarsBronze3.437.5110.259.7012.6810.964/1/199180.75-21.14-13.93
44BMO Low Volatility US Equity ETF (USD)ZLU-U-TActive0.334 StarsBronze-3.28-0.688.548.9413.323/19/201386.68-12.62
45Fidelity US Dividend for Rising Rts ETFFCRR-TStrategic Beta0.395 StarsSilver7.996.9411.729/13/201888.68-19.70
46Fidelity US Value ETFFCUV-TStrategic Beta0.395 StarsSilver14.1515.0720.566/5/202088.86
47Invesco FTSE RAFI US ETF II USDPXS-U-TStrategic Beta0.454 StarsSilver6.596.8114.409.773/31/201590.26-19.38
48Fidelity US High Dividend ETFFCUD-TStrategic Beta0.385 StarsSilver4.735.5714.499/13/201894.08-27.14

Source: Morningstar Direct | Data as of August 14, 2023

The screen resulted in a list of 48 funds, of which I’ve displayed the 10 funds with the heaviest tilt to growth (listed first) and the 10 funds with the heaviest tilt to value (listed last). Alongside the style score are fund MERs, categories, trailing returns and ratings. Where available, each fund’s maximum drawdown during the 2008 global financial crisis and the 2020 COVID-19 sell-off are also displayed, to illustrate the resiliency of each investment during times of strife.

Finally, I note here the abundant appearance of passive and strategic beta ETFs, both of which are offered with lower management fees than actively managed funds.

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

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 14/05/24 11:59pm EDT.

SymbolName% changeLast
Ishares Nasdaq 100 Index ETF
Invesco QQQ Index ETF
GX Nasdaq-100 Index Corporate Class ETF USD
BMO Nasdaq 100 Hedged To CAD Index ETF
BMO MSCI USA High Quality Index ETF
Vanguard US Div Appr ETF
BMO Low Volatility US Equity ETF USD
Fidelity US Div For Rising Rates Idx ETF
Fidelity US Value Index ETF
Fidelity US High Div Index ETF

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