The nominees for 2016 Morningstar Fund Managers of the Year are...

These long-term winners also delivered the goods in 2016.

Christopher Davis 25 January, 2017 | 6:00PM

What a year: 2016 included a revival in Canadian stocks, political upheaval in Europe and the United States, and at long last, rising expectations for inflation and interest rates.

These factors proved tricky for equity fund managers, especially in Canada, which enjoyed the strongest gains of any major market globally. Boosted by rebounding commodity prices and surging bank stocks, domestic equity investors faced strong competition from large- and small-cap stock indexes. Active U.S. equity managers faced a tough-to-beat benchmark in the S&P 500, while those investing abroad coped with fallout over Brexit and jitters over weakening growth in China. Bond investors finally reckoned with higher interest rates in the wake of Donald Trump's unexpected win.

Our nominees for 2016 Morningstar Fund Manager of the Year recognize investors who demonstrated skill in navigating this environment. While these awards acknowledge strong performance over the calendar year, short-term returns take a backseat to long-term fundamentals. After all, there's a lot of noise in short-term numbers; a one-year hot streak is often the result of luck or extreme risk-taking.

Manager of the year finalists must meet the following standards:

  • Our nominees' fund (or funds) will have been Morningstar Medalists over the entire year. That is, they will have earned a positive Analyst Rating (Gold, Silver or Bronze) from our manager research team, indicating that we think the strategy is likely to outperform in the long term. The rating stems from our confidence in management's abilities, the strength and risks of its strategy and the quality of its investment decisions.
  • Finalists should have turned in strong returns relative to their category rivals and relevant benchmarks in the prior calendar year. Such success should be consistent with management's strategy.
  • Finalists should also have a history of fundholder-friendly behaviour. For example, we like managers who keep a close watch on their fund's capacity and align their financial interests with those of unitholders by heavily investing their own money in the mandates they oversee.

This year, we present two awards, one for equity fund managers and the other for their fixed-income counterparts. We've listed our nominees below. We'll announce the winners on Jan. 31.

Finalists, Equity Fund Manager of the Year

Garey Aitken and Tim Caulfield
Franklin Bissett Canadian Equity (Silver)

This duo's emphasis on higher-quality, stable growers sounds unoriginal, but Aitken and Caulfield have distinguished themselves by moving into more-volatile fare when the price is right. Their decision to move into beaten-down energy stocks proved premature in 2015, but it fueled the fund's 22.5% gain in 2016 (for the F-series), placing it comfortably ahead of the S&P/TSX Composite Index and 85% of its rivals in the Canadian Equity category.

Bill Dye, David Jiles, Richard Liley, Patrick Reddy and Nick Szucs
Leith Wheeler Canadian Equity (Bronze)

This team's value-leaning style led it to beaten-down energy and basic materials stocks in 2015, such as  Teck Resources (TECK.B) and  Tourmaline Oil Corp. (TOU), and financials like Brookfield Infrastructure Partners (BIP.UN). These names hurt the fund in 2015, but sticking with them into 2016 meant the fund benefited handsomely when the stocks surged. Other long-term picks, including dairy producer  Saputo (SAP), also helped. All told, the team's 28% gain for the year was one the category's best showings.

Doug Stadelman and Scott Lysakowski
PH&N Vintage (Silver)
PH&N Canadian Equity (Bronze)

Favouring rallying energy and materials stocks wasn't the only successful path for Canadian equity managers in 2016. While Stadelman and Lysakowski held winning picks in those sectors -- like Seven Generations Energy (VII) and  First Quantum Minerals (FM), the managers' strong showing was thanks more to consumer discretionary holdings such as Sleep Country Canada (ZZZ) and Great Canadian Gaming (GC), which were up more than 50% for the year. The F-series of both funds returned 23%, placing well ahead of the competition. The funds' 10-year records remain marred by poor performance by previous management, but their records under Stadelman and Lysakowski remains strong.

Bill Kanko, Matias Galarce and Heather Peirce
CI Black Creek Global Leaders (Silver)

Kanko and his team think like long-term business owners and look for market leaders gaining share. They only invest when they believe they have developed a unique thesis not reflected in stock prices. Few stocks meet this standard, and those that do will often be off the beaten path, explaining their compact portfolio. Less-widely owned names like Uruguayan-based McDonald's franchisee powerhouse Arcos Dorados (ARCO) and global plasma provider Haemonetics (HAE) drove the fund's 8.7% gain for the year (for its fee-based series), more than double the MSCI ACWI Index's return over this stretch.

Stephen Arpin and William Otton
Beutel Goodman Small Cap (Silver)

Arpin and Otton are the only Equity Manager of the Year finalists to have turned in peer-beating performances in both 2015 and 2016. They did so by building a portfolio resilient enough to weather 2015's lousy environment for Canadian small caps but with enough get-up-and-go to outpace its competitors in 2016's racier market. Their 21% return last year wasn't as strong as more commodities-heavy rivals, but it still ranked in the Canadian Small/Mid Cap Equity category's top third. By preserving capital in 2015's downturn and delivering more-than-respectable gains in 2016's small-cap rally, the managers delivered nearly twice the return as its typical peer over the two-year period, contributing to their top-rate long-term record.

Finalists, Fixed Income Manager of the Year

Hanif Mamdani
PH&N High Yield Bond (Silver)

When our analyst team met with him in late 2015, Mamdani told us he considered Canadian high-yield energy bonds, which had taken a drubbing from sinking energy prices, an opportunity of a lifetime. Reflecting his contrarian ethos, he aggressively added to the fund's energy stake and briefly reopened it to new investments to fund additional purchases. Judging by his results in 2016, he made the right call: His fund rose 17% for the year, almost twice the average in the High Yield Fixed Income category.

John Carswell and Vivek Verma
Lysander Canso Corporate Value Bond (Gold)

The Canso team again demonstrated the value of independent thinking and meticulous research in 2016. Because the managers scooped up Post Media bonds -- making Canso the first to be repaid in the event of a default -- they scored big when Post Media announced its debt restructuring in July. Rebounds in other troubled issuers, such as Bombardier and Yellow Pages, also contributed to an 8.8% gain for the year -- the top showing in the Global Fixed Income category.

Alfred Murata and Daniel Ivascyn
PIMCO Monthly Income (Silver)

Murata and Ivascyn fired on all cylinders in 2016. The managers' shorter-duration portfolio paid off nicely as interest rates ticked upward at year-end. The biggest contributor, though, was their outsized stake in securitized bonds, including non-agency mortgage-backed securities, which draws upon PIMCO's expertise in the area. Their fund finished a bit behind its Lysander Canso competitor in the Global Fixed Income category, returning 7.8% for the year.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Arcos Dorados Holdings Inc7.85 USD1.29
Brookfield Infrastructure Partners LP67.49 CAD0.21
First Quantum Minerals Ltd14.00 CAD0.29
Great Canadian Gaming Corp42.66 CAD0.47
Haemonetics Corp117.53 USD0.31
Saputo Inc39.70 CAD-0.38
Seven Generations Energy Ltd7.84 CAD1.29
Sleep Country Canada Holdings Inc19.63 CAD-0.10
Teck Resources Ltd Class B22.58 CAD2.54
Tourmaline Oil Corp13.97 CAD0.22

About Author

Christopher Davis

Christopher Davis  Christopher Davis is Director of Manager Research at Morningstar Canada.