Smaller fund company shines at awards
Achieving excellence in a mutual fund — superior returns at a reasonable cost — isn’t the exclusive preserve of the industry giants. At this year’s Morningstar Canadian Investment Awards held this week in Toronto, smaller players picked up numerous trophies. Among the honoured underdogs was Steadyhand Investment Funds, which won the award for the best Canadian balanced fund for its Steadyhand Income Fund.
Management of Steadyhand Income is contracted out to Vancouver-based Connor Clark & Lunn Investment Management, which runs mostly institutional assets. Within its more narrowly defined peer group — Canadian fixed-income balanced — the fund has performed exceptionally well over its nearly six-year history.
Another positive attribute is its low management expense ratio of 1.04 per cent, compared with the median MER of 1.91 per cent.
Most of these savings are due to the fact that Steadyhand, unlike most fund companies, does not pay trailer commissions to brokers and dealers.
Equity funds and their managers tend to have a higher profile, and that goes for awards events. But for what balanced funds lack in excitement, they more than make up for in popularity.
Combining equity and fixedincome holdings, they appeal to investors of modest means who look to mutual funds to make investing simple and convenient.
For years, balanced products — including funds of funds — have been the bestselling type of mutual fund, and that trend remains fully intact. As of the end of October, according to the latest sales data released by the Investment Funds Institute of Canada, year-to-date sales of balanced funds totalled $23 billion. Meanwhile, equity funds collectively had net redemptions of $11.5 billion over the same period. There are different types of balanced funds: those mostly holding stocks, those mostly holding bonds and those somewhere in between. Of the three other award finalists among domestic balanced funds, Fidelity Monthly Income has more of a neutral asset mix, with TD Monthly Income and Norrep Income Growth having a tilt toward equities. Among global balanced funds, another big-selling category, the award winner was another conservative mandate, CI Investments Inc.’s Signature High Income. Though it invests mostly in Cana- da, its foreign holdings exceed the threshold for domestic funds. Currently, more than 40 per cent of the fund’s holdings are nonCanadian stocks or bonds. The jury for the mutual fund awards consisted of fund analysts from investment firms and thirdparty researchers including Morningstar Canada. (I served on the juries for investor education and career achievement, but not the mutual funds jury.) Though winning an award is indicative of merit, that doesn’t necessarily make a fund a suitable investment for a particular individual. For an investor seeking longterm growth, a balanced fund such as the award-winning Steadyhand Income isn’t a good fit, since the fund currently holds more than two-thirds of its assets in fixed income and cash. Availability through brokerage channels, including discounters, can also be an issue. Since Steadyhand doesn’t pay any trailer com- missions, brokers may be reluctant or in some cases refuse outright to carry it.
This reflects negatively on the brokerage, rather than the fund company, since brokers can get paid by charging commissions to buy or sell fund units.
Other fund managers that have been shut out of some brokerage channels for not paying trailer fees include Vancouver’s Leith Wheeler Investment Counsel and Calgarybased Mawer Investment Management.
Mawer picked up four awards for its funds — in the Canadian equity, Canadian small to mid-cap equity, international equity and global small to mid-cap categories. This goes to show that, depending on which broker you deal with, funds judged to be outstanding by analysts aren’t necessarily the ones that will be made available to you.
The full list of award winners can be found at investmentawards.com rudy.luukko@morningstar.com