Canadian investors have over a thousand allocation funds from which to choose, and the differences between them can be subtle.
Morningstar, for example, covers three Fidelity multi-asset offerings in Canada, each with their own distinct advantages and disadvantages. All three receive the same Pillar Ratings for People and Process – Above-Average and Average respectively – under the Morningstar Analyst Rating methodology, and each offer investors all-in-one portfolios and share some of the same managers.
Here’s a closer look at what distinguishes them from each other. (In this table, we have highlighted the F-series of the funds, which is the fee-based series.)
The one area in which these funds shine is in their ‘People’ pillar. All these funds earn an ‘Above-Average’ score for their managers. Here’s a detailed look at each strategy, and the manager behind it.
Fidelity Global Portfolios Strategy
The Fidelity Global Portfolios launched in 2007 and come in four options – Income, Balanced, Growth, and Equity. David Wolf, David Tulk, and Geoff Stein manage the portfolios, that consist of a mixture of exchange traded funds like the iShares Gold Trust (IAU); actively managed Fidelity mutual funds like Fidelity Canadian Discipline; and derivatives, such as futures contracts.
In 2013 the team started using ETFs to make shorter-term positions based on its economic views. For example, it recently owned iShares TIPS Bond ETF because the managers think inflation will persist for longer than the market expects. Wolf’s and Tulk’s previous work at the Bank of Canada gives them insights into central banks interest rate policies that proved useful in 2022 when the managers raised cash as bonds and stocks fell.
Unlike the other two funds on this list, the Global Portfolios have much more non-Canadian exposure, which dilutes the influence of Fidelity’s top Canadian equity managers, such as Hugo Lavallee of Silver-rated Fidelity Canadian Opportunities and Marc Schmehl of Bronze-rated Fidelity Canadian Growth Company.
Except for Fidelity Global Equity Portfolio which earns a Morningstar Analyst Rating of Bronze, all the rest of the funds in this strategy earn a Morningstar Analyst Rating of Neutral.
Fidelity Canadian Asset Allocation Strategy
Fidelity Canadian Asset Allocation, launched in 1994, is one of Fidelity’s oldest Canadian funds. Wolf and Stein run this Canadian-focused fund in a similar fashion to the Fidelity Global Portfolios with one major difference – instead of selecting multiple actively managed Fidelity mutual funds, they choose a few managers to handle security selection. This Canadian Equity Balanced category fund comes in one version – 70% equity and 30% fixed income. It earns a Morningstar Analyst Rating of Neutral.
Equity sleeve managers Lavallee, Don Newman of top-performing Fidelity Dividend Plus, and Darren Lekkerkerker of top performing Fidelity North America drive the strategy’s Above-Average People rating.
The portfolio’s move to counter inflation back in 2021 reflects Global Portfolios managers’ Wolf and Stein’s influence. They, for example, shifted more aggressively to cash here than in the Global Portfolios because Canada is more sensitive to interest rates than the US.
Fidelity Canadian Balanced Strategy
The Canadian Balanced strategy, launched in 1998, is the simplest of these three strategies but limits Wolf and Stein’s active decisions. Instead, the portfolio managers maintain a relatively static 50/50 split between equity and fixed income at this Canadian Neutral Balanced fund.
This fund relies on underlying stock manager Lekkerkerker, Canadian bond managers Sri Tella and Lee Ormiston, and US high-yield bond managers Harley Lank and Alexandre Karam. The latter pair give Canadian Balanced something Asset Allocation lacks: a 10% US high yield stake to diversify fixed income exposure.
Lekkerkerker’s equity sleeve drives the fund’s performance. His stock picks differ from those in his Fidelity North American Equity fund, but he has shifted deftly between the US and Canada in the past. This fund owned mostly Canadian stocks in 2022 which helped. It earns a Morningstar Analyst Rating of Neutral.
The People Behind the Funds Are the Difference
Investors may have noticed that bar one, all the funds on this list have a neutral rating – that is due to the fees charged by the various share classes of the strategies. These fees prevent most of their share classes from earning higher Morningstar Analyst Ratings. The three funds show the importance of the rationale behind a fund’s Morningstar Ratings.
The Above-Average People Ratings arise for different reasons: Fidelity Global Portfolios have the expertise of David Wolf and David Tulk, Fidelity Canadian Asset Allocation places emphasis on its star underlying portfolio managers like Hugo Lavallee, and Fidelity Canadian Balanced isolates its ability to generate excess returns to Darren Lekkerkerker.
Investors evaluating the three should take note; the nuances between them can lead to varying outcomes.
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