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Diversifying geographically with FundGrade A+® Award 2017 contenders
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The Analyst’s Desk
Informative and authoritative articles on the world of investment funds from Fundata’s Investment Analytics and Research team.

By Brian Bridger  | Thursday, December 28, 2017



This year should serve as a good reminder for Canadian investors about the importance of geographic diversification. While most equity categories have had positive returns so far in 2017, funds focused on regions outside of our borders have by far been the best performing.

Leading the way are a trio of categories focused on Asian markets: Greater China Equity, Asia Pacific ex-Japan Equity, and Asia Pacific Equity, with average year-to-date (YTD) returns of 35.8%, 31.7%, and 28.9%, respectively. Emerging Markets Equity is not far behind, gaining 27.2% so far in 2017.

Looking at some of the broader categories, Global Equity funds are up 15.3% and U.S. Equity funds have gained 14.8%, while Canadian Equity funds have trailed by a significant margin, having increased by just 6.4%. In the Small/Mid Cap space, the story is similar. Global and U.S. Small/Mid Cap Equity funds a have gained 13.4% and 11.6%, respectively, while Canadian Small/Mid Cap Equity funds are up just 2.4%.

Granted, the underperformance of the Canadian categories can be explained largely by their high weighting to the energy sector (average Energy Equity funds have lost 15.8% YTD). This still highlights the importance of diversifying your portfolio geographically. Below are a few Fundata FundGrade™ A-Grade funds that could be added to Canada-heavy portfolios to boost risk-adjusted performance.

PH&N Global Equity Fund is a top-performing fund in the Global Equity category. The fund was launched in December 2000 and has been managed by Habib Subjally of RBC Global Asset Management since early 2014. It holds a concentrated portfolio, which currently consists of only 33 companies. U.S. exposure sits at just under 60%, while the next two highest country allocations, the U.K. and India, are both around 5%. Canadian exposure is under 2%. Top holdings include UnitedHealth Group Inc., EDFC Bank Ltd., and Estee Lauder Cos Inc. The MER of the A series is 2.05%, which is below average compared with its peers. YTD the fund is up 26.4%, and it has posted a 3-year average annual compounded rate of return of close to 16% to Nov. 30. A strong finish to 2017 could earn this fund its first FundGrade A+ Award.

In the U.S. Equity space, Mackenzie US Dividend Fund has been a top performer since inception in April 2014, and it is also on track to win a FundGrade A+ Award in its first year of eligibility. While the YTD return of 14.8% is only slightly above average, this fund has the highest 2-year average annual compounded return of any actively managed U.S. Equity fund, at 15.6%. Managed by Darren McKiernan and Eugene Profis, this fund has a highly concentrated portfolio of just 29 companies. Over 25% of the sector exposure is to technology, which is a big departure from your typical Canadian dividend fund and adds to the diversification benefits of the fund. Top holdings include Allegran PLC, United Technologies Corp., and Sabre Corp. The MER of the A series is 2.36%, slightly above average for its category.

Trimark Emerging Markets Class was launched in January 2011. The management team of Jeff Feng and Matt Peden hold a relatively concentrated portfolio of less than 60 companies with about 32% exposure to China, 12% to South Korea, and 7% to Brazil. Top holdings include Ping An Insurance Group Co China Ltd., Naspers Ltd., and Tencent Holdings Ltd. YTD performance is 24.5%, and this fund boasts the best 5-year average annual compound return in the category, at 12.7%. As an added bonus, volatility has been below average compared with its peers. The MER of the A series is above average for the category, at 2.79%, but the results speak for themselves. This fund won a 2016 FundGrade A+ Award and looks poised to repeat in 2017.

DIY investors looking for low-cost passive options to diversify their portfolios might want to talk to their advisors about the following ETFs: iShares Core MSCI All Country World ex Canada Index ETF (TSX: XAW) offers global exposure for 20bps. iShares Core S&P 500 Index ETF (TSX: XUS) offers exposure to a broad U.S. index for 10bps. And iShares Core MSCI Emerging Markets IMI Index ETF (TSX: XEC) offers emerging markets exposure for 25bps.

Brian Bridger, CFA, FRM, is Vice President, Analytics & Data at Fundata Canada Inc. and is a member of the Canadian Investment Funds Standards Committee.

Notes and Disclaimers

© 2017 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.

FundGrade A+ Awards for 2017 to be announced on Jan. 25, 2018
Check the FundGrade A+ Awards website for winners

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