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number cruncher

What are we looking for?

Canadian equity funds that have weathered past storms.

The screen

Though the earlier part of the week brought a glimmer of hope for equity investors, year-to-date the results of the S&P/TSX Composite Index certainly leave much to be desired. The losses of roughly 3.9 per cent stand in stark contrast to the supercharged gains of about 25 per cent the prior calendar year. This, in addition to talk of forthcoming recession, is likely keeping investors on edge. But all said, long-term conservative investors should keep in mind that some funds have weathered storms better than others. To this end, today I use Morningstar Direct to screen for Canadian equity funds that were successful in outperforming the index during the financial crisis of 2008. To find these investment funds, I screened Morningstar’s database, which consists of roughly 222 unique Canadian equity funds, on the following metrics:

– A maximum drawdown that was better than that of the S&P/TSX Composite total return index during the financial crisis (Maximum drawdown measures the loss in portfolio value from peak to trough during a major market correction.) Today’s screen looks for this measure between Jan. 1, 2007, and Jan. 1, 2009, to ensure we capture the brunt of the financial crisis.

– A Morningstar Rating (aka “star rating”) of four stars or better. 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, etc., after receiving the rating.

In a nutshell, what we’re looking for here are funds and ETFs that did better than the index in the financial crisis and have gone on to outperform peers after fees over the past 10 years. Only the oldest share class of each fund was included in the search.

What we found

Canadian equity funds weathering the storm

NameMER(%)Morningstar Rating OverallMax Drawdown Financial Crisis 2008 (%)Max Drawdown COVID-19 Selloff 2020 (%)YTD Total Return (%)Total Ret 1 Yr (%)Total Ret Annlzd 3 Yr (%)Total Ret Annlzd 5 Yr (%)Total Ret Annlzd 10 Yr (%)Total Ret Annlzd 15 Yr (%)
Beutel Goodman Canadian Equity Class D1.384 Stars-32.23-22.15-1.765.748.797.069.466.20
Meritage Canadian Equity Portfolio F1.195 Stars-35.81-21.08-
Mawer Canadian Equity A1.144 Stars-36.03-19.74-4.506.408.216.9310.347.18
FÉRIQUE Canadian Equity1.104 Stars-36.97-20.36-1.2610.5711.958.818.505.22
iShares Canadian Fundamental ETF 0.724 Stars-38.11-26.074.4616.9812.609.399.446.10
Fidelity Canadian Opportunities Cl F1.155 Stars-38.55-15.87-8.490.4315.6112.1811.709.28
iShares S&P/TSX 60 ETF0.184 Stars-39.08-20.08-3.828.5010.849.229.785.77
S&P/TSX Composite TR-39.53-22.25-3.887.1510.358.609.195.54

Source: Morningstar Direct | Data as of May 16, 2022

The funds and ETFs that met the above requirements are listed in the table, alongside their ratings, maximum drawdowns during the financial crisis, management expense ratios (MERs) and trailing returns. Though not used in the screen, I’ve also displayed the maximum drawdowns of the same funds during the COVID sell-off of 2020 to demonstrate how these funds fared amid further market panic. Unsurprisingly, many of these same funds also outperformed the index in 2020. It is also worthwhile noting the appearance of one of Canada’s oldest ETFs that follows the S&P/TSX 60 and Composite indexes, showing fundamentally that simple low-cost index investing can afford reasonable results over time.

Note that the MERs listed here are reflective of the oldest share class. In the table, f-class (aka fee-based share classes) 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.

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

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