Fidelity is the Morningstar Multi-Asset Manager of the Year

PH&N and Manulife make the short list.

Christopher Davis 27 November, 2015 | 6:00PM

The Morningstar Multi-Asset Manager of the Year Award, which makes its debut this year, recognizes managers' ability to navigate multiple asset classes and build strong investment portfolios. The award acknowledges strong returns over the past year, but 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.

Our finalists faced a challenging backdrop this past year. Stocks continued to look inexpensive relative to bonds, but looked less attractive when viewed next to historical measures, especially in the United States. Meanwhile, global markets were unnerved by a slowdown in China and other emerging markets. The dramatic and unexpected decline in oil prices hobbled the Canadian economy and hit energy stocks and bonds alike. Such weakness led the Bank of Canada to cut interest rates in January, to the market's surprise, and another time afterward. Investors expected the central bank's counterpart to the south to move in the opposite direction, but the U.S. Federal Reserve has held rates steady.

In early November, our six-person manager research team identified managers that have navigated this environment well. After winnowing down the field to a short list of finalists, the group then choose a winner. We unveiled our winners at the 21st annual Morningstar Awards on Nov. 25.

Finalists: Tye Bousada, Geoff MacDonald and Frank Mullen, EdgePoint Wealth Management

Most balanced funds bolt together separately managed equity and bond portfolios and keep a steady allocation between the two. That's not the case for EdgePoint. Bousada, MacDonald and Mullen harness their bottom-up company research to invest in stocks and corporate bonds for EdgePoint Canadian Growth & Income and Edgepoint Global Growth and Income. The funds' asset allocation, which can fluctuate between 40% and 75% in stocks, also depends on bottom-up analysis--the managers will invest in bonds if attractive stocks can't be found and will hold cash when there's an absence of both. EdgePoint's fixed-income resources aren't as deep as those of the other finalists, but the managers focus primarily on corporate issuers they know well. These funds give the managers flexibility to choose companies' stocks or bonds depending on where the best opportunities lie.

The funds enjoyed no real edge from asset allocation in 2015: Their equity stakes were in line with their respective category averages, while relatively heavy cash weightings were a modest drag. The global fund's relatively high exposure to U.S. stocks, though, was a plus as the U.S. dollar rallied. On the flip side, the funds' emphasis on corporate bonds put them at a disadvantage versus peers that favoured better-performing government bonds. The funds' success depended more on the managers' ability to wring value from both their stock and bond holdings. The stock portfolios, which respectively mirror EdgePoint Canadian Portfolio and EdgePoint Global Portfolio, have handsomely outperformed their all-equity benchmarks. And though the funds' focus on mid-grade corporates could have dented returns on the bond side, the managers' picks bolstered returns.

The funds have trounced their competitors since their late 2008 launches, though it's worth noting neither fund's record was built over a full market cycle. The managers' previous success in bull and bear markets at Trimark gives us confidence in their long-term prospects, as do the funds' low fees and EdgePoint's strong alignment with fundholder interests. (EdgePoint was named Morningstar Steward of the Year this year.)

Finalists: Alan Wicks, Conrad Dabiet and Jonathan Popper, Manulife Asset Management Ltd.

Manulife Monthly Income is built along the lines of a traditional balanced fund with separately managed equity and bond portfolios. Wicks, Dabiet and Popper control the fund's stock/bond mix and oversee its equity portfolio. Not every move played out to the fund's benefit this year; trimming the fund's U.S. equity exposure throughout the year in favour of Canadian stocks may pay off over the long term, but it was a headwind recently due to the strengthening U.S. dollar.

The managers, though, avoid big short-term asset allocation shifts, which meant they didn't undermine an overall favourable story for the year. The team, which looks for high-quality firms trading at a discount to a conservatively calculated estimate of intrinsic value, invests patiently. Many long-held positions, such as Dollarama (DOL), Couche-Tard (ATD.A) and  Wells Fargo (WFC) helped push the fund ahead of its competitors in 2015. They also fuelled the fund's tremendous 2014 campaign.

In a fundholder-friendly move, Manulife capped Monthly High Income to new investments this year. Investors seeking an all-equity fund managed by the same team could consider Manulife Dividend Income, which is run by the same team.

Winners: Geoffrey Stein and David Wolf, Fidelity Investments Canada

It's often the managers who make the biggest asset allocation bets that get most of the attention, but lead manager Geoffrey Stein, a 20-plus-year Fidelity veteran, and newcomer David Wolf (a former adviser with the Bank of Canada) are unlikely to attract notice for flashy moves. They design an asset mix aligned with their return objectives and make mild tweaks depending upon the macroeconomic outlook, valuation and market sentiment. They also can draw upon Fidelity's army of portfolio analysts for bottom-up insights. The parent organization's vast fund lineup also expands the managers' toolkit to asset classes like preferred stocks and global real estate.

Stein and Wolf have parlayed their advantages to good effect in 2015. Bronze-rated Fidelity Global Monthly Income has walloped the Global Neutral Balanced category average, while Fidelity Canadian Asset Allocation, Fidelity U.S. Monthly Income and Fidelity Monthly Income have comfortably outpaced the competition. The managers don't make big asset class shifts, but they oriented their portfolios in the right direction. For example, they tilted their global portfolio toward U.S. stocks and bonds, which fared relatively well and got a boost from the appreciating U.S dollar. Lightening up on cash was also a plus.

The managers' tenures at the funds are relatively short; Stein came aboard in 2012 and Wolf in 2015. However, Stein is a veteran asset allocator, and he's been a listed portfolio manager on U.S. asset allocation funds since 2009. He also benefits from a giant team of asset-allocation specialists, which should help keep the funds in good stead.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Alimentation Couche-Tard Inc43.08 CAD0.49
Dollarama Inc45.18 CAD1.07
Wells Fargo & Co53.23 USD-0.02

About Author

Christopher Davis

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