Why You Let Stock Pickers Pick Stocks

The end of a 'jack-of-all-trades' approach to managing this Canadian balanced fund set a foundation for success, Morningstar's Michael Dobson find.

Michael Dobson 25 August, 2023 | 1:13AM
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Michael Dobson: What if I told you that the biggest and best-performing Canadian equity fund in the last 10 years wasn't always the strategy it is today, that it actually looked pedestrian for years, until a large switch in the strategy occurred almost 10 years ago?

This is a look at Mackenzie Bluewater Canadian Growth Balanced. The Bluewater team is a boutique under the Mackenzie umbrella, operating largely independently and running their philosophy of finding quality companies growing at an above-average pace. And they were, and still are, quite good at it. But while their equity funds did well from 2009 to 2014, the Multi-Asset Fund fell behind peers in its category benchmark. The excellent stock pickers of Bluewater managed the stocks in addition to the bonds and portfolio allocation. It made for a less than ideal situation. High cash, very abrupt allocation movements and little expertise in fixed income contributed to unremarkable returns.

The Mackenzie Bluewater Canadian Growth Balanced F share class underperformed its Morningstar category benchmark by around 1.2% per year from the start of 2009 to the end of 2014. And average cash holdings sat around 12% over that period, which represents quite a drag on performance. So, in 2014, the larger Mackenzie firm decided to switch it up. An in-house group of experts would handle allocation in fixed income duties on the balanced funds, which would free up the Bluewater team to do what they do best. Fast forward to less than 10 years later and the impact is clear. Cash went down and returns went up. From 2015 to the end of July 2023, the fund's F share class beat its category benchmark by 1.3% annualized, a great improvement from the 1.2% underperformance over the previous six years. It seems simple. Let stock pickers pick stocks, let bond managers manage bonds, right? Once bogged down by too many duties outside of their strengths, the Bluewater team has enjoyed great success for nearly a decade. The key to unlocking that potential should not be understated. A poor setup can stifle even a great equity team, but a strong foundation creates the conditions for them to thrive.

For Morningstar, I'm Michael Dobson.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Mackenzie Bluewater Canadian Gr Bal F13.64 CAD-0.19Rating

About Author

Michael Dobson  Michael Dobson is an Associate Manager Research Analyst at Morningstar Canada

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