November 2015 fund performance

Currency effects pushed U.S. equity funds to the top; analyst Achilleas Taxildaris looks at how Morningstar medalists did.

Achilleas Taxildaris 16 December, 2015 | 6:00PM
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Achilleas Taxildaris: The month of November was similar to what has been seen year-to-date and in the past 12 months: fairly volatile, but at the end stocks both in Canada and the U.S. were kind of flat. In Canada stocks have underperformed mainly due to the continuation of the fall in commodity prices, and as the Canadian markets is overweight in mining and energy names, that had an impact on performance.

While Canadian equities have underperformed U.S. equities, the currency has been the main driver between U.S. funds and Canadian equity funds for the year and in the month of November.

We cover five funds in the U.S. Equity category and we also look at certain ETFs in the category. So, for competitive reasons, we're going to look at the direct sales series of the mutual funds. The U.S. equity category was 1.9% up in the month of November and 13.6% up year-to-date.

Capital Group U.S. Equity-Canada is a Silver-rated fund that underperformed its peers in the month of November, and it's also lagging year-to-date. This fund has exposure outside of U.S. equities as well, and in a month in which the U.S. dollar has been strengthening, that hurt performance. Also, an overweight in the resource sectors hurt this fund as well. The final detractor of performance has been currency. The fund historically has not been hedging currency exposure, but in the last year it had pared some of that exposure and that also hurt performance with a strengthening U.S. dollar.

Mawer U.S. Equity is a Bronze-rated fund that outperformed its peers in the month of November and year-to-date. Being fully invested 100% in the U.S. and totally unhedged has definitely contributed toward beating its peers. However, an underweight in the resource sector and fairly good stock selection was not enough to help this fund beat its passive benchmark.

The Bronze-rated NEI Ethical American Multi-Strategy beat its peers in the month of November and also year-to-date. Its ethical filters contributed to an underweight in energy and resource names that have underperformed in the past month and year-to-date and that helped in performance. However, in a transitional year for the fund as there has been a shakeup in the management team, poor stock selection was the main reason why it lagged its passive benchmark.

RBC O'Shaughnessy Value is a fully hedged fund, and competing in a mostly unhedged U.S. Equity category will struggle when the U.S. dollar strengthens versus the Canadian dollar. That has been the case both in the month of November and year-to-date. That said, comparing the results to the U.S.-dollar benchmark to take the currency effect out, it has also underperformed this month and year-to-date. Main reasons have been overexposure to the resources sectors. As these resource sectors became cheaper, this fund with a value tilt increased its exposure and this contributed to the underperformance.

Beutel Goodman American Equity is a Bronze-rated fund and it's our latest addition to our covered funds. Focusing on stock selection and fully unhedged, this fund with its trademark disciplined selling strategy has beaten its peers over the long term. More recently, an underweight in the resource sectors has contributed as well. That said, it still lagged its passive benchmark year-to-date and over the longer term as well.

By now it's easy to identify a pattern. In the efficient U.S. equity large-cap space even the highest-rated mutual funds have a challenge to beat their passive benchmarks.

Major ETF providers offer ETFs that track the S&P 500. The S&P 500 is the most commonly used benchmark among U.S. equity funds. It's an index that contains the 500 largest U.S. equities and it's market cap-weighted. The main differentiation between these ETFs has been price or fees.

These options are offered hedged or unhedged. For investors that want exposure to smaller-capitalization equities, Vanguard offers the Vanguard U.S. Total Market ETF that owns almost every liquid stock in the U.S. This very diversified option has 3800 holdings in its portfolio. For investors that desire passive execution or who want to beat the benchmarks while getting exposure to certain factors, ETF providers offer ETFs with tilts on certain factors such as value or low volatility. These ETFs, while more expensive than the plain-vanilla ETFs, are still a lot cheaper than mutual funds.

As its name indicates, the BMO Low Volatility ETF favours stocks that in the past had lower volatility. There have been studies that these stocks offer attractive risk-adjusted results. The RBC Quant U.S. Dividend Leaders is a fund that gives exposure to equities with high dividend yields. The iShares U.S. Fundamental tracks the RAFI 1000 Index that weights holding according to fundamental measures of size including book value, cash flow, sales and dividends instead of the traditional market cap-weighted.

For more information and longer track records for the funds mentioned in this video, please check

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Achilleas Taxildaris

Achilleas Taxildaris  Achilleas Taxildaris is analyst for Manager Research and focuses on active strategies.

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