When Should an Active Fund Underperform?

Funds that deviate from the benchmark, but have a high active share, can still exceed expectations, explains Abdulai Mohamed.

Abdulai Mohamed, CFA 30 June, 2023 | 4:39AM
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Abdulai Mohamed: It may come as a surprise to many that skilled fund manager Bill Kanko's CI Global Leaders Fund (CIG11106) has underperformed both its benchmark and category so far this year. But this underperformance is expected. With an active share of over 90%, the fund deviates significantly from its benchmark in behavior and composition. Notably, the fund's industrial sector holdings are 3.5 times greater than the Morningstar Global Growth Index, while its allocation to the technology sector is nearly half.

Consequently, the fund's performance often diverges from its benchmark. Since its inception in June 2006 until May 31, 2023, the fund's F share class has achieved an annualized gain of 9%, outperforming both the Morningstar Global Markets Index and the Global Equity Morningstar category by 0.8% and 3.4% respectively. Despite occasional periods of being out of favor, such as in 2021, 2019, 2018, and 2014, the fund has exceeded expectations by deviating from the high-performing U.S. market and technology sector.

Instead of overemphasizing technology stocks and U.S. equities, the fund's careful stock selection, especially within the industrial sector, has compensated for reduced exposure. Notably, its investment in Weir Group, a mining equipment manufacturer, in December 2019 has resulted in an impressive 78% increase in value as of May 31.

The fund distinguishes itself with a stable team, a well-defined investment strategy that balances discipline and flexibility, and a willingness to differentiate from the benchmark. Its consistent outperformance of both benchmark and peers in its category attests to the manager's expertise and unique investment style. For investors seeking a deliberately different investment approach, the CI Global Leaders Fund may be worth considering.

For Morningstar, I'm Abdulai Mohamed.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
CI Global Leaders Fund A15.47 CAD0.08Rating

About Author

Abdulai Mohamed, CFA  is a Manager Research Analyst for Morningstar.  

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