Fund Investing

Of over 1,000 medalist mutual funds that had positive returns, most of the top performers are U.S. focused
By Ruth Saldanha | 14/01/19

2018 was a rough year for markets. Most markets ended the year in the red, with 181 of 215 equity markets under Morningstar coverage falling by 10% in value. Canada fell 12% last year, with less than 15 stocks in the S&P/TSX 60 closing the year in the green. Of the 250 stocks in the Composite index, less than 90 were in the green.

About the Author
Ruth Saldanha is Senior Editor at Morningstar.ca

Mutual funds did not do much better. Of the total of over 21,000 open ended mutual funds in the Morningstar Direct universe, a little over 3,500 showed positive returns for 2018. Interestingly, over a thousand of these are medalist funds, meaning we believe that these funds have the potential to outperform in the future. On the other hand, several of the worst performing funds – mostly in the energy and natural resources sectors – also received a negative rating.

It is little surprise that all the top performers are U.S. equity funds, the S&P 500 lost a little over 4%, as against the 12% loss of the S&P/TSX Composite. Here’s a look at the top five performers of 2018, that are also medalist funds:

NameCategoryQuantitative
Rating
Total 1-Year
Return
Dynamic Power American Growth Ser F US EquitySilver24.47
Dynamic American FUS EquityGold14.78
Fidelity US Focused Stock FUS EquitySilver13.96
Mackenzie US Mid Cap Growth Cl MUS Small/Mid Cap EquityGold11.91
Sun Life MFS US Growth Class FUS EquitySilver10.72
Source: Morningstar. Data 

Dynamic Power American Growth

Dynamic Power American Growth is a five-star, Silver-rated fund. It has returned close to 25% in 2018. The fund is almost entirely invested in U.S. equities and has significantly overweight positions in healthcare and technology. Managed by Noah Blackstein, the fund invests over 50% of its holdings in technology stocks – more than double the category average of 21.58%.

The fund is high risk with varying returns. Some of those returns have been exceptional, such as its 50.6% gain in 2013. But the negative periods have been exceptionally painful: in 2008, it lost nearly 44% compared with a loss of 28.3% for the average U.S. Equity fund, and in 2016 it lost more than 13% when the rest of the category gained nearly 6% on average. But while its standard deviation is significantly higher than that of its category peers, its long-term returns have also been among the very best.

Dynamic American

The four-star, Gold-rated Dynamic American is less volatile than Dynamic Power American Growth, but its returns have been good at close to 15%, leading to exceptional risk-adjusted returns as measured by the Sharpe ratio.

Portfolio manager David Fingold aims to hold a portfolio of 25 companies or less, in which he can take advantage of what is going well while avoiding danger spots. The sectors he likes are technology, consumer discretionary, industrials and healthcare. "Historically, these have been the best sectors, and going ahead, we are positive on them. Within healthcare, for example, we like animal healthcare. Short of socialism, we don't see any major political risk, and frankly, if capitalism is over, we can't help our clients," he says.

Fidelity US Focused Stock F

Fidelity US Focused Stock F is a four-star, Silver-rated fund that returned close to 14% last year. Managed by Stephen DuFour, the fund has a high sustainability rating. It is overweight its category in healthcare and financial services but is underweight on consumer cyclicals. Though it has above average risk, it also has delivered high returns.

Mackenzie US Mid Cap Growth Cl M

Mackenzie US Mid Cap Growth is a five-star, Gold-rated fund that focuses on medium to small cap companies in the U.S. It currently has 7.5% of its $2.6 billion of assets in cash. Its top holdings include Syneos Heath (SYNH), Progressive Corp (PGR) and Carter’s Inc (CRI). It has low risk, as compared with its category, but has delivered above average returns. Managed by Phillip Taller, the fund has returned close to 12% in 2018. Unlike its category, the fund is overweight industrials, and is underweight technology, financial services and consumer cyclicals.

Sun Life MFS US Growth Class F

Sun Life MFS US Growth Class F is a five-star, Silver-rated fund. The fund invests mostly in US large caps and is overweight on technology. Some of its holdings include Microsoft (MSFT), Amazon.com (AMZN), Visa (V) and Alphabet (GOOG). The fund has above average risk, but has also delivered above average returns.

 

 


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