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What are we looking for?

Canadian-domiciled managers of U.S. equity funds that have outperformed their peers.

The screen

A look across Canada’s largest fund categories by assets this year shows that managers who have a U.S. equity mandate (holding 90 per cent or more of their holdings in U.S.-listed stocks) have done exceptionally well. The funds in the category have produced an average 10.4 per cent this year as of the end of November, which contrasts with Canadian equity funds, which have only returned 0.4 per cent on average. For those who believe the U.S. equity market still has legs, and seek active management from Canadian-domiciled fund managers, the following screen might offer ideas. To find funds in this space that have done well this year and over the longer term, I used Morningstar Direct to screen for U.S. equity funds across two dimensions:

  • A Morningstar Rating (informally known as the “star rating”) of four stars or better. Recall that Morningstar’s star rating is a look back at historical risk-adjusted returns after fees, relative to peers. The star ratings are not forward-looking, but our data show that over the past decade, five-star funds domiciled in Canada were less than half as likely to be liquidated or merged than one-star funds. The star rating is a great starting point for further research.
  • A Morningstar Quantitative Rating of gold, silver or bronze. This is Morningstar’s forward-looking assessment of a fund’s ability to outperform in the future. In the years that the rating has been in existence we’ve found that as a group, medalist-rated funds have outperformed neutral or negatively rated funds, after receiving their ratings.

Additionally, with the small retail investor in mind, only funds with minimum investments of less than $500 were included in today’s screen.

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 advisers, 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

The funds that met the above requirements within the U.S. equity category are listed in the table along with their management expense ratios and historical performance. To ensure a fair comparison of MERs, I’ve included only the fee-based versions of each fund. Remember that the MERs listed here for F-class funds do not include an overall management fee that is charged separately by your adviser for fee-based accounts.

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

Select Canadian-domiciled U.S. equity funds

FundMER (%)Morningstar Rating OverallMorningstar Quantitative RatingYTD Ttl. Rtn. (%)1Y Ttl. Rtn. (%)3Y Ann. Ttl. Rtn. (%)5Y Ann. Ttl. Rtn. (%)10Y Ann. Ttl. Rtn. (%)15Y Ann. Ttl. Rtn. (%)Inception Date
Dynamic American F1.194 StarsGold16.716.716.814.413.810.53/4/2002
Fidelity Insights Class F1.164 StarsSilver28.329.317.5n/an/an/a1/26/2017
Fidelity U.S. Focused Stock F1.155 StarsSilver28.330.521.317.617.19.210/10/2000
Mackenzie U.S. Growth Cl F1.054 StarsBronze18.418.
Manulife U.S. Dividend Income F1.194 StarsGold18.819.714.613.1n/an/a10/31/2012
Manulife U.S. Equity F1.244 StarsSilver12.511.914.713.416.2n/a6/27/2008
NBI U.S. Equity F1.014 StarsBronze17.016.516.515.1n/an/a12/24/2013
PH&N U.S. Growth Fund F0.764 StarsGold19.420.414.112.614.3n/a10/31/2008
RBC U.S. Equity Fund F0.784 StarsGold14.715.
Sun Life MFS U.S. Equity F1.124 StarsBronze9.910.511.311.114.1n/a2/15/2008
Sun Life MFS U.S. Growth F1.115 StarsBronze26.126.721.216.918.1n/a9/30/2010
TD U.S. Blue Chip Equity F1.055 StarsBronze31.432.420.617.419.812.711/1/2000

Source: Morningstar Direct.

Data as of Dec. 8

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

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