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We are two thirds of the way through 2020 and for most people, Dec. 31 cannot come soon enough. It has been a turbulent year to say the least. There are 859 active exchange-traded funds (ETFs) that debuted before the end of 2019, and as of Aug. 31, 412 of these have had positive returns year to date (YTD). But as always, these results are heavily dependent on the fund category (we use the categories defined by the Canadian Investment Funds Standards Committee. The best-performing category has been Precious Metals Equity, gaining on average 44%. At the other end of the spectrum, Energy Equity has been the worst-performing category, losing 37% on average. The accompanying tables list the five best- and worst-performing ranked categories.
The Fundata FundGrade A+ Awards are handed out in January and are based on monthly FundGrade ratings over the past calendar year. Monthly FundGrade ratings consider up to 10 years of risk-adjusted performance. ETFs and retail mutual funds are graded in the same peer group within their respective CIFSC categories (full methodology can be found here). While there are still four months left before the final calculations, we have a fairly good sense of which ETFs are in line for 2020 FundGrade A+ Awards this year. Let take a closer look at some of these funds.
If equity exposure is what you are looking for, Dynamic Active Canadian Dividend ETF (TSX: DXC) is one fund to consider. This fund was an FundGrade A+ Award winner in 2019 and is looking to repeat again in 2020. So far this year, it has gained 0.7%, while the average Canadian Dividend and Income Equity fund has lost 7.8%. Its 3-year average annual compounded rate of return to Aug. 31 is 8.8% compared with the category average of 2.4%. Both metrics earn DXC the number-one ranking by share class in the category.
DXC debuted January 2017 and has a mandate to invest primarily in Canadian securities that pay or are expected to pay a dividend. Exposure is gained through a mutual fund of the same name managed by Don Simpson, Eric Mencke, and Rory Ronan of 1832 Asset Management. Geographically, the portfolio is allocate4d roughly 70% to Canadian Equity and 30% to U.S. Equity. Financial Services account for a quarter of the sector allocation. Top holdings include Royal Bank of Canada, Canadian Pacific Railway Ltd., and Canadian National Railway Co. The fund yields 2% at the time of writing in mid-September, and the MER is 0.85% (management fee of 0.75%).
For those looking at more conservative options, Mackenzie Core Plus Canadian Fixed Income ETF (TSX: MKB) might be one to consider. This fund was also a FundGrade A+ Award winner in 2019 and is well on its way to claiming more hardware in 2020. MKB was launched in April 2016 and is managed by the Mackenzie Fixed Income Team, which includes Steve Locke, Dan Cooper, Konstantin Boehmer, Movin Mokbel, and Felix Wong. The fund invests primarily in investment-grade Canadian government and corporate debt with maturities of more than one year. However, it has the flexibility to invest up to 25% in fixed-income securities of issuers rated below investment grade, as long as it maintains an overall weighted average investment grade rating. It can also invest up to 30% in foreign investments. This flexibility is intended to provide the highest returns while maintaining the risk profile of a typical Canadian bond fund.
The strategy is definitely paying off. Over the past four years, MKB is the top ranked Canadian Fixed Income fund by share class, with an average annual compounded rate of return of 4.5% to Aug. 31. The average for the category is 3.4%. Year to date, it is up 9.4%, handily beating the category average of 7.2%. The fund yields 2.18%, has a management fee of 0.4%, and an overall MER of 0.45%.
Lastly, we will look at a balanced ETF and a potential first time FundGrade A+ Award winner. Purpose Tactical Asset Allocation Fund ETF (NEO: RTA) was launched in May 2017, but a mutual fund version of the same strategy has been around since 2015. The portfolio is managed by Craig Basinger, CIO of Richardson GMP.
This fund is in the Tactical Balanced category, which includes funds that adjust their asset mix depending on market conditions and/or outlook. RTA in particular uses a proprietary, quantitatively-driven process to make asset allocation decisions with the goal of capturing upside in bull markets and limiting downside in bear markets. The fund invests in North American-listed ETFs to gain exposure to the various asset classes, with the current asset mix around 79% equity, 11% fixed income, and 10% cash. However, over the past two years, the equity exposure has been as high as 93% and as low as 18%, which highlights just how tactical this fund actually is.
RTA is the top ranked fund by share class in the category year to date, gaining 11% compared with the category average of 0.9%. And true to its objective, over the past two years this fund has an up capture of 1.15 and a down capture of just 0.97. The MER is 0.89%, which includes a management fee of 0.75%.
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
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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.
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