Remember that the FundGrade A+ Awards are the product of consistently high
monthly FundGrade ratings. A lot can happen between now and the end of the
year, but a number of funds have already had a great start to the year and
with continued outperformance, are poised to pick up some hardware next
January. Here’s a look at this year’s contenders.
Desjardins’ low-volatility global equity offering
Desjardins iBrix Low Volatility Global Equity Fund debuted in January 2015 and is managed by Unigestion Asset Management
(Canada). The fund uses a rules-based strategy to create a portfolio of
global equities that is expected to be less volatile than the typical
global equity fund.
Low-volatility strategies have become very popular over the past few years,
due not only to their strong risk-adjusted performance, but also their
class-leading absolute performance. In the Canadian Equity space, six of
the top 15 funds based on 2-year average annual compounded rate of return
follow a rules-based low-volatility strategy.
Similar trends can be seen with the U.S. and International Equity
categories. With Global Equities however, the trend is much less evident.
While there are no funds with a quantitative low-volatility strategy in the
top 15 based on 2-year return, a few funds, including Desjardins iBrix Low
Volatility Global Equity Fund, are still producing above-average
performance with below-average volatility.
The fund has gained 11.5% annually over the past two years, which is
significantly higher than the category average of 7.9%. Volatility over
this timeframe is 9.5%, well below the 11.1% category average. This
impressive risk-adjusted performance has earned this fund a FundGrade A
rating for three of the first four months of 2017 and puts it on track to
earn a FundGrade A+ Award in its first year of eligibility.
Over half of the portfolio consists of U.S. equity, with Canada and Japan
the next largest at around 12% each. Financial services is the largest
sector weight, at 26%. Top holdings include big-pharma companies
Eli Lilly and Co. (NYSE: LLY) and Roche Holding Ltd. The fund is
available in a variety of sales options. The advisor shares come with an
MER of 2.54%, and the fund is rated as Low to Medium risk.
Horizons’ insider-focused ETF
Another potential first-time FundGrade A+ Award winner this year is
Horizons Cdn Insider Index ETF (TSX: HII). This ETF also follows a rules-based strategy, but one not as common (or
popular) as the low volatility variety. HII seeks to replicate the
performance of the INK Canadian Insider Index,
net of fees. This index tracks the performance of 50 TSX-listed stocks that
have significant insider transactions and holdings. It also screens along
valuation and growth metrics. The index is equally weighted and rebalanced
Insider buying activity and large insider holdings have long been
considered positives for equities. The theory is that insiders know their
companies and businesses much more intimately than most investors. If they
are confident enough to hold large positions, possibly representing a large
portion of their personal wealth, then investors should also feel confident
investing in the company. And if insider buying activity is high, this
might indicate that those who know the company the best believe shares are
undervalued. Astute investors have always used this information to provide
clues on insider sentiment about a company. For the average investor, HII
does the heavy lifting, eliminating the need for investors to pore over
insider trading summaries.
HII was launched at the beginning of 2015 and has an MER of 0.74%. Its
2-year average annual compounded rate of return of 8% is in the top five in
the Canadian Equity funds category, and more than double the category
average. At 8.4%, volatility is average compared with its peer group
despite the fact that the fund has a mid-cap bias. The portfolio is more
diversified than the typical Canadian Equity fund. Financials make up just
20%, while Basic Materials and Energy are only 16% and 12%, respectively.
Top holdings include
Cascades Inc. (TSX: CAS), Martinrea International Inc. (TSX: MRE), and
Transcontinental Inc. (TSX: TCL.A). HII has a quarterly distribution and currently yields just over 2%.
Brian Bridger, CFA, FRM, is Vice President, Analytics & Data at Fundata Canada Inc. and is a
member of the
Canadian Investment Funds Standards Committee.
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