Fundata's FundGrade® rating system assigns letter grades on a scale from A to E to investment funds on a monthly basis. And because the FundGrades are recalculated every month, some funds may slip, others may rise. One of the many benefits of the FundGrade system is the accumulation of historical data. So we set about researching which funds have achieved the longest active monthly A-grade streak.
Although they are calculated monthly, the FundGrade rating system actually takes into account up to 10 years of performance history. The calculation uses well-known performance measures, such as the Sharpe ratio and the Sortino ratio, to determine relative performance of a fund on a risk-adjusted basis. To earn a FundGrade “A” ranking, a fund must score in the top 10% of its category. We use the standard categories as defined by the Canadian Investment Funds Standards Committee (CIFSC), an industry organization. (Full disclosure: Fundata Canada Inc. is a member of CIFSC, and both authors of this article sit on the board.)
So which funds are consistent monthly A-grade winners? The results of our research are quite startling and seem to defy the notion that past performance does not predict future performance.
Two funds stood out to us for having achieved A-Grade status for over four consecutive years. When you consider the history that goes into these calculations, these feats are quite remarkable.
CI Signature High Income Fund
When it comes to consistency, few funds are better than the CI Signature High Income Fund. This Global Neutral Balanced fund debuted in 1996 and has been a top performer ever since. Since inception, the fund has earned an annual compound return of 9.6%. It achieved the annual Fundata FundGrade A+ Award™ in both 2011 and 2012, the first two years the rating has been available. And the latest monthly A-Grade rating as of September 30, 2013, marks the 52nd consecutive month of earning this distinction.
The fund is managed by Signature Global Asset Management, which is led by Chief Investment Officer Eric Bushell. Portfolio managers on the fund include Geoff Marshall, head of Signatures high-yield bond team, Joe D’Angelo, equity specialist focused on global industrial products, and transportation, and Ryan Fitzgerald, who specializes in yield-oriented equities, such as income trusts, real estate, and infrastructure. This team, which has been together since 2010, combines to produce a globally balanced, income generating portfolio.
As of September 30, the asset mix was 44% equity, 41% fixed income, and 15% cash. Top equity holdings include Inter Pipeline Fund Ltd. (TSX: IPL), Singapore Telecommunications Ltd. (OTC: SGAPY), and Suncor Energy Inc. (TSX: SU). Geographically, the fund is allocated 50% to Canada, 34% to the United States, with smaller percentages in Asia, Europe, and Latin America.
Rising interest rates have dampened returns since May of this year, when the Fed suggested it would begin tapering its bond purchases. But while it has had negative returns in 3 of the past 5 months, the fund is still up 4.4% Year to date (YTD). Over the long term, this fund has consistently been a top-quartile performer in the category posting average annual compound returns of 8.1% over 3 years, 8.5% over 5 years, and 8.9% over 10 years. These high returns are accompanied by extremely low volatility compared with its peer group. The 3-year annualized standard deviation is just 4.6%, compared with an average of 5.5% for the Global Neutral Balanced category.
The fund can be purchased with a variety of load options, and there is also a corporate class version available. The MER of the A series is just 1.6%. This is well below the category average of 2.1% and extremely cheap considering the track record of the mandate.
TD Entertainment & Communications Fund
The TD Entertainment & Communications Fund has been a top-performing fund in just about any time frame you look at. In the highly competitive Global Equity category this fund has achieved and maintained Fundata’s FundGrade A-Grade rating for an incredible 56 consecutive months. As a result, it also earned the FundGrade A+ Award for 2011 and 2012.
The fund invests in “companies whose products and services relate to the entertainment and communications industries,” looking specifically for those “that will benefit from the convergence of these sectors, favorable regulatory changes, and beneficial financial markets.” This strategy results in a portfolio made up of just over 80% in U.S. companies, with 54% in the Technology sector and 39% in Consumer Services.
The fund’s top holding is Crown Castle International Corp. (NYSE: CCI), a wireless infrastructure company that has gained 10% in the past year and just over 300% over 5 years. The second-largest holding is another wireless infrastructure company, American Tower Corp. (NYSE: AMT), which lost 1.54% over the past year, but gained 130% over 5 years. It’s easy to see how this fund has achieved such impressive returns.
The rankings of this fund within the Global Equity category are very impressive with the 3-year average annual compound return at 17.5% (category median 9.2%), 5-year at 17.0% (category median 5.7%), and 10-year at 11.9% (category median 4.0%), ranking the fund first in all three timeframes. The 3-year annualized standard deviation is 8.1%, slightly better than the median of 9.3%.
The prospectus risk rating for the fund is “High,” although according to Fundata's Prospectus Risk Indices™, the 3-year standard deviation ranks lowest among funds with a “High” risk rating, and well under the 15.4% median for this group.
Reid Baker is Manager, Analytics & Data 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, FRM, is Director, Analytics & Data at Fundata Canada Inc. and is a member of the Canadian Investment Funds Standards Committee.
Notes and Disclaimers
© 2013 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.