What are we looking for?
Canadian equity ETFs that took advantage of growing corporate earnings in 2022.
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
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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