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What are we looking for?

Canadian equity ETFs that took advantage of growing corporate earnings in 2022.

The screen

Earlier in the week, David Milstead unveiled The Globe and Mail’s recent study of corporate profits across the first nine months of last year. The study showed that on aggregate, Canadian companies are generating higher earnings than they were prior to the pandemic. Mr. Milstead also outlined that earnings growth was uneven across the 11 sectors of the economy. Today, we’re looking for Canadian equity funds that were able to use these higher profits to boost returns for investors. To do this I used Morningstar Direct to screen for ETFs and DIY mutual funds that have squeezed out positive returns over 2022 and have also shown reasonable after-fee, risk-adjusted returns over a longer time frame. To screen for the latter, I used the Morningstar Ratings for Funds (also known as the star rating) which does just this over three, five and 10 years, with more emphasis placed on recent history.

What we found

Funds with positive returns in a tough year

Fund Legal NameTickerMER (%)Morningstar Rating OverallAnnual Ret 2022 (%)Total Ret YTD (%)Total Ret 1 Yr (%)Total Ret Annlzd 3 Yr (%)Total Ret Annlzd 5 Yr (%)Total Ret Annlzd 10 Yr (%)Inception DateBasic Materials (%)Communication Services (%)Consumer Cyclical (%)Consumer Defensive (%)Healthcare (%)Industrials (%)Real Estate (%)Technology (%)Energy (%)Financial Services (%)Utilities (%)
BMO MSCI Canada Value Index ETFZVC0.403 Stars2.444.891.8510.366.9310/4/201711.102.593.644.780.0012.180.556.0218.9536.573.46
BMO Low Volatility Canadian Equity ETFZLB0.395 Stars1.344.547.108.519.6311.9110/21/20117.2310.147.3416.290.0011.337.603.380.0020.0416.31
Invesco FTSE RAFI Canadian Index ETFPXC0.514 Stars1.195.520.9310.938.158.521/10/20129.123.795.763.520.187.111.601.5921.5740.174.49
iShares Canadian Fundamental ETFCRQ-NE0.723 Stars0.955.510.7010.657.898.232/22/20069.403.745.983.450.207.171.661.5921.2840.694.44
First Trust Canadian Capital Strength ETFFST0.664 Stars0.935.293.498.236.708.6511/30/200115.810.0012.057.860.0015.960.008.0012.0427.970.00
Desjardins RI Canada MultifactorDRFC0.583 Stars0.594.692.148.449/27/201810.603.364.317.300.0010.017.426.6215.8630.253.41
TD Canadian Large Cap Equity D1.383 Stars0.304.490.907.457.054/26/20168.189.200.714.730.0011.442.014.0818.0138.851.22
Category Average (Canadian Equity Funds)-4.985.03-1.737.306.457.548.714.807.645.490.5214.062.366.5513.3927.433.83
S&P/TSX Composite Index-5.845.65-2.038.457.868.1111.634.895.263.380.3013.432.665.6717.7930.574.41

Source: Morningstar Direct, Data as of Jan 17, 2023

The ETFs and mutual funds that met the above requirements are listed in the accompanying table, alongside their fees, trailing performance, ratings, inception dates, and recent sector allocations. The statistics for the peer group, and for the S&P/TSX Composite TR index, are also included, for reference. Of the qualifying ETFs and funds, it’s noted that there is representation from both actively managed ETFs (FST, TD Large-Cap Equity D) as well as “smart-beta” funds. PXC, CRQ, ZVC and DRFC, for example, each follow a set of predetermined index rules that provide consistent exposure to investment factors such as dividends, quality, momentum, etc. at a fraction of the cost of true active management. Unlike active managers though, smart beta funds don’t deviate from their set of rigid rules, for better or for worse.

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

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

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