Fund Investing

Beutel Goodman and PH&N managers, RBC earn top prizes.
By Christopher Davis | 31/01/17

Morningstar's 2016 Fund Managers of the Year set themselves apart in a year marked by a rising stock market at home, political turmoil abroad and expectations for higher inflation and interest rates. The winners didn't succeed because they anticipated these events better than anyone else. And they didn't earn top honours because they beat every one of their competitors. They delivered strong returns in absolute and relative returns, though. These returns were consistent with their long-term success. These awards recognize skilled managers whose strengths shined through in 2016 as well as over the long haul.

About the Author
Christopher Davis is Director of Morningstar Research at Morningstar Canada. In this role, he oversees Morningstar’s Canada active fund research analyst team and sits on the Canadian Morningstar Analyst Ratings Committee. He is Morningstar Canada's lead analyst for the Fidelity and Sentry fund families. He also represents Morningstar on the Canadian Investment Funds Standards Committee. Prior to assuming his current role in 2012, he was a senior fund analyst in Morningstar's U.S. office. During his tenure, he led Morningstar's coverage of Fidelity Investments and was the editor of the Fidelity Funds Newsletter. He also served as the lead analyst on several other asset managers including the Baron, FPA, Columbia Acorn, Ariel, and T. Rowe Price fund familes, as well as for the health-care category. His specialties included behavioral finance, income oriented, and tax-managed fund. He also oversaw Morningstar's target-date fund coverage of the Fidelity and TIAA-CREF series. Davis joined Morningstar in 1999 as a data analyst and became a fund analyst in 2000. Davis holds a bachelor’s degree in economics and political science from the University of Illinois Urbana-Champaign

Similarly, our Steward of the Year award acknowledges asset managers whose fund-holder friendly behaviour is nothing new. Our winner built on its existing strengths.

In all, five equity and three fixed-income fund managers made our analysts' Fund Manager of the Year shortlist. We nominated two fund providers for Steward of the Year. The winners are listed below.

Morningstar Equity Fund Manager of the Year

Stephen Arpin and William Otton
Beutel Goodman Small Cap D (Silver)
Category: Canadian Small/Mid Cap Equity
2016 Return: 20.7%
2016 Category Percentile Rank: 34

Arpin and Otton may not be an obvious choice for Manager of the Year. After all, their 20.7% return for the year fell far short of the S&P/TSX Small Cap Index's 38% gain for the year. But that's still a strong return in absolute terms and well ahead of the Canadian Small/Mid Cap Equity category average. (The small-cap benchmark also poorly represents the investable small-cap market, which is why most active small-cap managers beat it over the long haul.) They also were the only equity Manager of the Year finalists to have beaten their peers in both 2015 and 2016. Unlike most rivals, the managers didn't need a nice bounce in 2016 to overcome the prior year's commodity-driven slump. Instead, the managers broke even in 2015 thanks to winning consumer discretionary picks like Uni-Select and BRP. Sticking with beaten-down energy and mining holdings helped push them ahead of the competition in 2016. By preserving capital in 2015 and delivering healthy gains in 2016's small-cap rally, the managers delivered almost twice the return of its typical peer over the two-year period. This pattern of performance contributes to their fine long-term record.

Morningstar Fixed Income Manager of the Year

Hanif Mamdani
PH&N High Yield Bond D (Silver)
Category: High Yield Fixed Income
2016 Return: 17.5%
2016 Category Percentile Rank: 6

Mamdani's 2016 showing smashed the High Yield Fixed Income category average as well as the benchmark return, and beat his Morningstar Manager of the Year rivals. It's this success that made him a finalist, but how he got there made him a winner. Mamdani's long-term success stems from his ability to recognize when the time is ripe to take risk. In late 2015, he said slumping oil prices were a once-in-a-lifetime opportunity to load up on depressed energy issuers. Mamdani jacked up his fund's energy stake and briefly reopened it to new investments to fund additional purchases. This move contributed to his fund's first-ever calendar year loss in 2015. Sticking to his convictions paid off in spades in 2016: His fund rose 17.5% for the year, almost twice the category average.

Morningstar Steward of the Year

RBC Global Asset Management

Large asset managers don't often shine as stewards. While our Steward of the Year, RBC Global Asset Management, is unlikely to develop the distinctive boutique culture of our other finalist, Steadyhand Investments, it has used its heft to improve its human and technological capabilities and to keep fund expenses well below average. In 2016, RBC fund investors continued to reap the benefits of improving economies of scale when the firm sliced expenses broadly across 85 funds. Because lower-cost funds are more likely to outperform, RBC improved investors' odds of success. By lowering the bar on fees, RBC's heft forces its competitors to do the same.

RBC's win also acknowledges the well-managed reopening of PH&N High Yield Bond orchestrated by its Phillips, Hager & North subsidiary. RBC has not always managed capacity so well -- domestic-equity funds like RBC Canadian Dividend are saddled with bloated asset bases -- but we credit it for doing so in this case.

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