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number cruncher

What are we looking for?

Top-rated mutual funds from top-rated asset managers

The screen

When looking for a mutual fund to hold for the long term, investors commonly consider things such as historical performance (on an absolute basis and in comparison to category peers), as well as fees. Equally important though, and often overlooked, is having an understanding of the firm that manages the mutual fund, also known as the asset manager. How a firm operates and the way in which decisions are made can affect areas including capacity management, risk management, recruitment and retention of key personnel, investment professional compensation, and pricing schemes. Weakness and strengths in these areas can affect the longevity of your investments. Hence, it is best to invest with companies where your interests as an investor are among the firm’s top priorities.

To this end, Morningstar’s manager research team assigns ratings to Canadian funds and exchange-traded funds that include an explicit component focused on the understanding of an asset manager’s business practices and culture. We refer to this component as the “parent” pillar and rate each asset manager as either low, below average, average, above average or high, depending on the efficacy of their practices. To highlight a few great mutual funds available to Canadians from top-rated firms, I used Morningstar Direct to screen more than 3,400 Canadian-domiciled mutual funds to find a selection of options to consider. The criteria include:

– A Morningstar Analyst parent pillar rating of above average or high indicating the firm has demonstrated strong stewardship practices and prioritize investors’ interests.

– A Morningstar Quantitative or Analyst rating of bronze, silver or gold indicating a forward-looking view of the fund’s ability to outperform its peer group or relevant benchmark on a risk-adjusted basis over a full market cycle, or both.

– A Morningstar Rating of five stars. The star rating is an objective look back at a fund’s after-fee, risk-adjusted returns relative to the category to which the fund belongs. Though the measure is backward-looking, Morningstar’s research shows that over time and on aggregate, five-star funds continue to outperform four-star funds, three-star funds and so on, after receiving the rating.

– A top decile category rank over the past year indicating the funds selected have outperformed their peers over the past 12-months.

What we found

Mutual fund managers that prioritize investor interests

Fund NameMorningstar CategoryMorningstar Analyst Rating - Parent PillarMorningstar Quantitative RatingMorningstar Analyst RatingMER (%)Morningstar Rating OverallCategory Rank 1YTotal Return 1Y
Fidelity American Balanced Fund FCanada Fund Global Equity BalancedAbove AverageBronze1.1657-0.28
Fidelity American High Yield Sr FCanada Fund High Yield Fixed IncomeAbove AverageSilver0.95511.78
Fidelity Canadian Large Cap Sr FCanada Fund Canadian Focused EquityAbove AverageSilver1.115112.58
Fidelity Canadian Opportunities Sr FCanada Fund Canadian EquityAbove AverageSilver1.10517.56
Fidelity Concntr Val Priv Pool Sr FCanada Fund Canadian Focused EquityAbove AverageSilver1.025112.65
Fidelity Floating Rate Hi Inc FCanada Fund Floating Rate LoansAbove AverageSilver0.90546.12
Fidelity Income Portfolio Series FCanada Fund Global Fixed Income BalancedAbove AverageBronze1.0056-2.58
Fidelity Monthly Income Series FCanada Fund Canadian Neutral BalancedAbove AverageBronze0.9253-0.25
Manulife Cdn Growth & Inc Priv Trust FCanada Fund Canadian Neutral BalancedAbove AverageGold0.8958-0.47
Manulife Tactical Income FCanada Fund Tactical BalancedAbove AverageSilver1.10562.74
PIMCO Global Short Maturity (Cnd) Sr FCanada Fund Global Fixed IncomeAbove AverageSilver0.38580.45
PIMCO Low Duration Mly Inc (Cnd) Sr FCanada Fund Global Fixed IncomeAbove AverageBronze0.8459-0.89
Vanguard Global Balanced Series FCanada Fund Global Equity BalancedHighSilver0.5458-0.34
Vanguard Global Dividend Series FCanada Fund Global EquityHighSilver0.47526.69
Vanguard Windsor U.S Value Series FCanada Fund US EquityHighSilver0.56538.08

Source: Morningstar

The list highlights four of the top-rated firms assessed by Morningstar’s manager research team through vigorous reviews and interviews with firms’ investment teams. Not all asset managers have been welcoming however; some of Canada’s largest firms have declined to participate in reviews with independent research firms such as Morningstar.

We find this quite alarming, given that Canadian investors need transparency and unbiased opinions when it comes to their investments, especially in a vertically integrated market where asset managers and advisers recommending investment funds often work hand in hand.

As such, today we highlight firms that have welcomed this transparency and independent view by opening their doors to help investors understand their culture. These firms include: AGF Investments, BMO Global Asset Management, Beutel Goodman, CI Global Asset Management, EdgePoint, Mawer Investments, Sun Life Global Investments and TD Asset Management.

Note that the management expense ratios listed here are reflective of the F share class (that is, fee-based share classes). In the table, F-class shares exclude the cost of advice and are held in fee-based accounts where the adviser charges separately for advice.

This article does not constitute financial advice. Investors are encouraged to conduct their own independent research before purchasing any of the investments listed here.

Danielle LeClair, MFin, is director of manager research, Canada for Morningstar Research Inc.

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