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The Fundata Analytics Team puts a FundGrade® “A-list” fund under the microscope.

By Fundata Analytics Team  | Wednesday, February 01, 2012

Fundata’s new FundGrade® A+ Rating™ builds on the already popular FundGrade rating system by rewarding funds that have been able to keep a consistently high FundGrade throughout a calendar year. Let’s take a look at a few winners of the inaugural 2011 A+ Grades, demonstrating what it takes to be considered the best of the best.

A+ Winner: Mawer Canadian Equity Fund

The fund demonstrates all the hallmarks of an A+ performer: outstanding risk adjusted performance over the short and long term as well as consistency in outperforming its peers.

Managed by Jim Hall and Vijay Viswanathan, this fund is a first-quartile performer based on 3-, 5-, and 10-year compound returns, earning 14.5%, 3.3% and 8.3%, respectively. This stellar performance has been accomplished while keeping volatility to a minimum. The 3-year annualized standard deviation is only 12.9%, well below the category average of 15.1%.

Short-term performance has been just as impressive. The Mawer Canadian Equity Fund achieved the highest 2011 calendar year performance among mutual funds in the Canadian Equity category. The fund gained 1.9% in 2011, while the benchmark S&P/TSX Composite Total Return Index was down 8.7% and the Canadian Equity category on average lost 10.7%.

This solid risk adjusted performance earned the Mawer Canadian Equity Fund an A Grade in March 2011, its first A Grade in over four years. And after finally attaining this A Grade status in March, the fund was able to maintain the A-rating through the remainder of the year by continuing to outperform its peers. This consistent risk-adjusted outperformance is ultimately what led to a FundGrade A+ for 2011.

The fund debuted in 1991 and seeks long-term capital appreciation by investing in a diversified portfolio of mid to large cap Canadian companies. As of Dec 31, 2011, three of the top holdings include Toronto-Dominion Bank (TSX: TD), Bank of Nova Scotia (TSX: BNS), and Royal Bank of Canada (TSX: RY). Other large holdings outside of the banking sector include Canadian National Railway Co. (TSX: CNR) and Brookfield Asset Management Inc. (TSX: BAM.A). Financials make up 35% of the portfolio, while Energy and Industrials comprise 20% and 12%, respectively.

The Class A series is a no-load fund. It requires a minimum investment of $5,000 but comes with one of the lowest MERs in the category at 1.24%, well below the Canadian Equity average of 2.2%.

A+ Winner: Sentry Canadian Income Fund

This fund was an excellent performer in 2011 and, as such, has earned an FundGrade A+ Rating. The fund stayed at the top of the Canadian Dividend and Income Equity category throughout 2011, maintaining an A Grade over the 12 months. In 2011 and earlier, the fund has been a first-quartile performer, landing in the top 25% in 1-, 3-, and 5-year compound returns. In 2011 the fund returned 6.1%, significantly better than the S&P/TSX Composite Total Return Index, which lost 8.7% over the same time, and the Canadian Dividend and Income Equity category, which lost 0.8%. The fund debuted in February 2002 and has been outperforming the S&P/TSX ever since.

The management team consists of Michael Simpson and Aubrey Hearn, and they operate under the mandate of “providing consistent monthly income and capital appreciation” as stated in the prospectus. They accomplish this by investing in Canadian equities, fixed income, real estate investment trusts, and income trusts, although as of the end of December ’11, the portfolio held 88.7% equity. Management has listed the risk rating for this fund as “medium.” The 3-year standard deviation is very respectable at 9.2%, considering the high returns it has achieved and the average standard deviation of the group at 11.6%.

The management team shifted the sector concentration of the portfolio considerably over the last quarter of 2011. At the end of September, Financial Services was the dominant sector in the portfolio, whereas at the end of December it was dominated by the Energy sector.

The MER for the A-series is 2.7%, slightly higher than the average for the Canadian Dividend and Income Equity category of 2.2%.

Reid Baker is an Analyst in the department of Investment Analytics and Research at Fundata Canada Inc., a leading source for investment fund information. He is Chairman of the Canadian Investment Funds Standards Committee (CIFSC).

Brian Bridger, CFA, is Manager of Analytics and Data Operations at Fundata Canada Inc. and is a member of the Canadian Investment Funds Standards Committee.

Notes and Disclaimers

© 2012 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. However, please call the author to discuss your particular circumstances.

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