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What are we looking for?

Mutual fund managers that defied odds and showed their mettle in the first quarter.

The screen

Though the bitter battle of the first quarter is squarely behind us, many investors are likely still tending to wounds inflicted on portfolios. This said, every battle produces champions, and sometimes they are unlikely ones. This week, I look for actively managed mutual funds that not only outpaced their peers, but did so in an unexpected way by rising dramatically in terms of their rankings over the first quarter. To do this, I first looked at the trailing three-year category ranks of all funds in Canada against their category peers as they appeared on Dec. 31, and again on March 31.

It’s important to note that Morningstar’s category ranks are not based solely on performance, but rather risk-adjusted total returns, after fees – a higher and more meaningful bar than simply looking at return on its own. After running this analysis I isolated for funds that:

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  • On a three-year trailing basis, ranked in the bottom half of peers at the end of last year (a percentile ranking of 51 or more) but then ranked in the top quartile of peers (a percentile ranking of 25 or less) at the end of the first quarter of 2020;
  • Have a Morningstar Quantitative Rating of gold or silver. Recall that this is Morningstar’s forward-looking assessment of a fund’s prospective ability to outperform similar funds after fees, based on five factors: people (the quality of management team); process (the effectiveness and consistency of the investment process); parent (organizational structure and talent retention); performance; and price (fees). Over the long term, gold, silver, and bronze funds are expected to outperform neutral and negative funds after fees.

Only the oldest share class of each fund in our database was considered.

More about Morningstar

Morningstar Research Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. Morningstar offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors. Morningstar Direct is the firm’s multi-asset analysis platform built for asset management and financial services professionals. Morningstar Canada on Twitter: @MorningstarCDN.

What we found

Six mutual funds met the above requirements, shown in the table with their fees, historical returns, percentile ranks, Morningstar ratings and the category of funds to which they are being compared. Note that F-class funds are provided through fee-based advisers who may apply an overall management fee separate from the management expense ratio, or MER, listed here.

This column does not constitute financial advice. It is always recommended to speak to a financial adviser or investment professional before investing.

Select Canadian mutual funds

Fund NameMorningstar CategoryMER (%)3Y Percentile Rank 12/31/20193Y Percentile Rank 3/31/2020Morningstar Rating OverallMorningstar Quantitative RatingInception DateYTD Ttl. Rtn. (%)1Y Ttl. Rtn. (%)3Y Ann. Ttl. Rtn. (%)5Y Ann. Ttl. Rtn. (%)
Mawer Global Bond Series AGlobal Fixed Income0.7588184 StarGold6/15/20159.578.342.56n/a
Canoe Defensive U.S. Equity Port Cl FU.S. Equity1.2574204 StarSilver11/22/20133.437.718.5210.20
Mackenzie Unconstrained Fixed Inc FHigh Yield Fixed Income0.825845 StarSilver12/1/20140.382.632.743.76
Fidelity Floating Rate Hi Inc FFloating Rate Loans1.0174115 StarSilver10/16/2013-2.78-4.170.524.23
Galileo High Income Plus Class FCdn. Small/MidCap Eqty.1.6486124 StarGold11/14/2006-2.89-2.25-0.290.68
Sun Life MFS Canadian Equity Class ACanadian Equity2.2152174 StarGold7/31/2013-7.59-3.911.751.62

Source: Morningstar Direct

Returns as of April 28.

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

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