Equities pay off for institutional funds

By Mark Noble | January 29, 2010 | Last updated on January 29, 2010
2 min read

The final quarter of 2009 brought terrific returns to institutional pooled fund investors, according to Morningstar Research.

For the third consecutive quarter, an overwhelming majority of the pooled funds in the company’s Canadian database had positive returns — 906 out of 1,033 (88%) posted gains for the quarter, including 535 of 574 (93%) of equity-focused funds.

Thirty-nine of the 41 Morningstar Canada Pooled Fund Indices were up for the quarter. These fund indices measure the asset-weighted average return of all funds within a category. Eight of the indices returned more than 5% over the three-month period, with three of earning gaining more than 10%.

The best-performing fund index was the Precious Metals Equity category, which is actually a reflection of the stellar performance one fund. The index’s sole constituent fund, Goodman Precious Metals Equity, gained 13.2% over the quarter. That fund started the quarter with a 3.8% loss in October, but followed with an industry-best 17.3% gain in November.

Given the strength of commodity prices in the last quarter, it’s not surprising that Canadian funds with a high degree of natural resource exposure fared well.

The Canadian Small/Mid Cap Equity pooled fund index, with a combined weight of 47.3% in the energy and materials sectors, ranked second in performance with a gain of 11.3%, while the Canadian Focused Small/Mid Cap Equity index (45.6% in resources) was third with a 10.4% gain.

The Natural Resources Equity category was fourth with a 9.8% gain. Even the resource heavy Income Trust Equity (36.5% in resources) post a return of 7.3%.

There was great differentiation in performance amongst constituent funds. Morningstar says the best performer with an 18.8% gain was Desjardins MB Canadian Small Cap Equity, while the Floyd Growth fund brought up the rear with a 3.4% return.

The fund index that tracks the Canadian Equity category — the largest among all equity pooled fund categories — gained 3.9% in the fourth quarter. Returns among the 137 funds in that category ranged from 1.0% for Kingwest Canadian Equity Portfolio to 9.8% for RBC Private O’Shaughnessy Canadian Equity Pool.

Among the three largest foreign equity categories, the U.S. Equity pooled fund index gained 3.6% for the quarter, while Global Equity returned 3%, and International Equity was nearly flat at 0.5%.

Goodman & Company Investment Counsel also dominated the foreign fund space. The best-performing individual foreign fund was Goodman U.S. Equity Growth Currency Neutral, up 15.9%.

The only equity-based pooled fund index to lose ground in the fourth quarter was Japanese Equity with an 8.8% loss. This essentially matches the return of the larger of the category’s only two funds, Burgundy Asian, which was also the worst performer among all individual funds for the quarter.

As of Dec. 31, 2009, three pooled fund sponsors have six mandates each earning a 5-star Morningstar Rating: Beutel Goodman & Co. Ltd., Goodman & Co. Investment Counsel Ltd. and Mawer Investment Management Ltd. QV Investors Inc. has the second highest total with four funds rated 5-stars. About 81% of the 1,033 pooled funds in Morningstar’s database currently receive a Morningstar Rating.

(01/29/10)

Mark Noble