?
Have Active Canadian Equity Fund Managers Earned Their
Keep?
Morningstar Manager Research
7 May 2015
Christopher Davis
Director, Manager Research, Canada
+416 484-7823
[email protected]
Michael Keaveney, MSc., CFA
Director, Morningstar Investment
Management, Canada
+416 484-7818
[email protected]
Key Takeaways
× We reviewed the 10-year investment performance of Canadian fund managers in two key CIFSC
fund categories: Canadian equity and Canadian small/mid-cap equity.
× Before taking fees into account, these groups of managers appear to exhibit skill: More than 70% of
active Canadian equity funds outperformed the S&P/TSX Capped Composite Index over the past
decade gross of fees, while 96% of active Canadian small/mid-cap equity funds outpaced the
S&P/TSX Small Cap Index on a gross of fees basis.
× Fees gobble up most of Canadian equity funds’ excess returns: Just 18% of funds in the category
outperformed the passive alternative over the 10-year period.
× Fees still matter in the small-cap arena. This may not appear to be the case at first blush, as 95% of
active Canadian small/mid-cap equity funds outperform the passively managed alternative after
fees over the 10-year period. However, the link between performance and MER was stronger in the
Canadian small/mid-cap equity than in the Canadian equity category.
× Consistency counts: We detected a positive correlation between “batting average”—the proportion
of monthly periods where the fund outperformed—and 10-year performance in both categories.
Avoiding outsized losses was tied to better information ratios, but we saw no link between relative
performance in up markets and long-term returns. Overall, funds’ batting averages had a stronger
relationship with performance than the downside capture ratio.
× Just as in the fictional Lake Wobegon, where everyone is above average, an investment universe
where most fund managers beat their benchmarks is highly implausible. Size and style factors,
rather than skill, partly explain the funds’ success gross of fees. Funds in the small-cap category
systematically overweighted mid-cap stocks, which handily outperformed smaller names over the
period. Style, more than size, boosted Canadian equity funds. On average, the group exhibited a
more value-oriented style than the benchmark, a plus as value beat growth over the past decade.
Introduction
Active managers are on the ropes these days. Academic research continues to cast doubt on their ability
to outperform passive benchmarks, especially once systemic factors like size, value, and momentum are
taken into account. In cases where researchers find evidence of managerial skill, long-term winners are
usually few in number. Presuming such managers exist, it is not necessarily possible to identify them
ahead of time.
In the United States, investors have been voting for passive management with their feet, with flows into
index mutual funds and exchange-traded funds far outstripping active alternatives in recent years. While
investor interest in passive vehicles—primarily ETFs—has grown in Canada, actively managed funds
continue to garner the lion’s share of new money. This is not necessarily the case because active
management has won the intellectual argument; significant distribution hurdles, such as the market
dominance of the largest fund incumbents and the prevalence of commission-based advisors, have
slowed the spread of low-cost passive investments. All told, active managers still control about 90% of
Canadian retail assets.
This paper examines how well Canadian investors have been served by active management over the
long haul. With U.S. and international manager performance already subjected to ample scrutiny, we
Morningstar Manager Research | 7 May 2015
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have limited our sample to less-widely studied Canadian domestic-equity strategies in the Canadian
equity and Canadian small/mid-cap categories. Our research focuses on the 10-year period through Feb.
28, 2015, and assesses the extent to which funds in both categories outperform their benchmarks on a
risk-adjusted basis. Our measure for risk-adjusted performance is the information ratio, which weighs
funds’ excess returns over their benchmarks against the volatility of those returns. Put another way, the
information ratio tells us whether the returns have been good enough to justify the risks managers took
against their benchmarks.
Methodology
Many active/passive comparisons pit cost-free benchmarks against active funds, which charge fees. This
tests whether managers are skilled enough to overcome their fee hurdle, not raw manager skill. To
assess skill alone, we calculated the gross returns (that is, the returns funds earn before charging fees)
over the 120-month period for funds in the Canadian equity and Canadian small/mid-cap categories. We
compare the excess gross returns of funds in the respective categories with the S&P/TSX Capped
Composite Index and S&P/TSX Small Cap Index over the 10-year period, ranking funds by their
information ratios. (Many Canadian equity funds use the S&P/TSX Composite Index instead of the TSX
Capped Composite as their bogy, but the benchmarks performed identically over our study period.) We
used these indexes because both benchmarks are widely used by funds in the categories. And because
at least one ETF tracks each of the indexes by investing in their underlying constituents, the benchmarks
provide realistic depictions of managers’ investable opportunity set. Our data set includes the 120-month
period from March 1, 2005, through Feb. 28, 2015.
As much as investors might appreciate knowing their manager is skilled, they benefit only if their
experience (which is net of fees) is better than the passive alternative. We compare net returns with the
passive alternative instead of benchmarks because investors cannot hold indexes directly. To reflect this
reality, our study uses ETF proxies instead of index returns in calculating funds’ net-of-fee information
ratios. We measure the excess return of Canadian equity funds over iShares Core S&P/TSX Capped
Composite ETF and over iShares S&P/TSX Small Cap ETF for the Canadian small/mid-cap equity category.
(To approximate the small-cap ETF’s pre-June 2007 inception returns, we backed out the ETF’s MER from
the index’s return.)
We use the success ratio, which measures the percentage of funds in the category that survived the
period and outperformed their benchmark, to depict how many active funds outperformed over the
period. We calculate success ratios using gross and net return data. We define success as generating a
positive information ratio. This metric is designed to correct for survivorship bias, though because no
fund in either category disappeared over the period, the data set is unusually free of it. We use
performance data from funds’ oldest share classes so returns are counted only once in our calculation.
We excluded index funds as well as high-net-worth, pooled, and institutional vehicles from our sample,
as they have no published MER.
To be sure, our methodology has some limitations. Because we lacked reliable historical data on funds’
embedded trailing commissions, we could not untangle the cost of management from the cost of advice.
This trailer typically tacks on another percentage point to a fund’s MER, giving low- or no-trailer funds
an inherent advantage. The latter accounted for 14 of 59 Canadian equity funds in our data set and nine
of 46 Canadian small/mid-cap funds.
We also recognize the information ratio’s potential weaknesses as a risk-adjusted return measure. It is
highly dependent, of course, on choosing the right benchmark for comparison. High information ratios
can signify not skill but an improper benchmark. Volatility is also an imperfect proxy for risk. Moreover,
Morningstar Manager Research | 7 May 2015
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many investors do not view risk through the lens of volatility or relative to an index, instead defining it as
the potential for permanent capital loss. There is something to these arguments, especially in the case of
Canadian market benchmarks, which are vulnerable to steep sell-offs in down markets thanks to heavy
exposure to volatile energy and materials names. In acknowledgement of these concerns, this paper
explores the impact of our choice of benchmarks on our results and the relationship between capital
preservation and information ratio.
It is important to note that that we used the then-prevailing MERs for the ETF proxies to calculate net
returns for the benchmarks, meaning we didn’t simply extrapolate the current MER backward. While the
current MER will have more bearing on future performance than past MERs, our study represents the
actual opportunity set investors have had over the past decade. Current MERs for ETF proxies are often
much lower than their average MERs over the past 10 years. For example, the MER of the iShares Core
S&P/TSX Capped Composite ETF currently sits at a miniscule 0.05%, much lower than the average 0.24%
over the period measured.
Our Results
On a gross of fees basis, the Canadian equity and Canadian small/mid-cap equity categories appear to
be hotbeds of manager skill. The overwhelming majority of Canadian equity offerings outpaced the TSX
Capped Composite over the 10-year period, while nearly all Canadian small/mid-cap funds topped the
TSX Small Cap. While 43 of 59, or 72%, of Canadian equity funds outperformed gross of fees, only eight,
or 14%, overcame their fee hurdle versus the ETF. By contrast, all but two of 46 Canadian small/mid-cap
equity, or 96%, funds outperformed on a gross basis, while 45, or 94% did so net of fees. Exhibit 1
(below) breaks down success ratios for both categories using gross and net returns. Appendix 1 (page 13)
lists all the Canadian equity funds in our sample along with their information ratios calculated on a gross
and net of fees basis. Appendix 2 (page 15) does the same for the Canadian small/mid-cap equity
category.
Exhibit 1: Success Ratio by Category
Category
Gross of Fees
# of Funds Successful Funds
Net of Fees
Success Ratio Successful Funds
Success Ratio
Canadian Equity
59
43
71.7%
8
13.6%
Canadian Small Cap
46
44
95.7%
43
93.5%
Of course, success ratios signify only outperformance, not its magnitude. An information ratio of 0.01
counts as success just as much as an information ratio of 1.0. Canadian equity funds have enjoyed moremodest success on the whole: The median gross information ratio for the group was 0.44, versus 2.79 for
funds in the Canadian small/mid-cap equity category. This outcome makes intuitive sense; it is more
difficult to add value in relatively efficient markets, and Canadian equity funds typically focus on the
largest and most closely followed stocks in the country. By contrast, Canadian small caps are generally
less widely followed, improving managers’ chances of identifying mispriced stocks.
The differences in relative efficiency of large- and small-cap markets also may help explain why the
distribution of outcomes was wider for Canadian small/mid-cap equity funds. If small caps offer more
opportunities to add value, they provide more occasions to destroy it. While Canadian small/mid-cap
equity funds can succeed and fail more spectacularly, their Canadian equity counterparts usually deliver
less extreme outcomes. As Exhibit 2 (page 4) illustrates, Canadian equity funds cluster closely around
the category’s median gross information ratio. A larger contingent of Canadian small/mid-cap equity
Morningstar Manager Research | 7 May 2015
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funds significantly outperformed the category’s median gross information ratio, as Exhibit 3 (page 4)
demonstrates.
For Canadian equity funds, the picture is much less flattering on a net-of-fees basis. The biggest cohort
in the group delivered net information ratios between negative 0.5 and negative 1.0, though the median
information ratio was negative 1.2 and distribution of outcomes was skewed toward sharply negative
information ratios (see Exhibit 4 on page 5). Meanwhile, despite higher MERs on average, the
distribution of outcomes for Canadian small/mid-cap equity funds was sharply positive, (see Exhibit 5 on
page 5), with the median net information ratio weighing in at 2.8.
Exhibit 2: Canadian Equity Category and Information Ratio (Gross)
18
16
Funds
14
12
10
8
6
4
2
0
10-Year Information Ratio
Source: Morningstar
Funds
Exhibit 3: Canadian Small/Mid-Cap Equity Category and Information
Ratio (Gross)
10
9
8
7
6
5
4
3
2
1
0
10-Year Information Ratio
Source: Morningstar
After fees, the top Canadian small/mid-cap equity fund had an information ratio 2.5 times the best
information ratio in the Canadian equity category. Even the Canadian equity category’s best relative
performers underperformed the TSX Capped Composite. A fund with a negative 0.3 information ratio
would land in the Canadian equity group’s top 20%. The reverse was true for the Canadian small/mid-
Morningstar Manager Research | 7 May 2015
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cap equity category. A fund could land in the bottom 20% of the group and still have a positive net
information ratio of 0.9. Exhibit 6 breaks down gross and net information ratios for both categories by
quintile.
Exhibit 4: Canadian Equity Category by Net Information Ratio
16
14
12
Funds
10
8
6
4
2
0
Source: Morningstar
10-Year Information Ratio
Funds
Exhibit 5: Canadian Small-Cap Equity Category by Net Information
Ratios
9
8
7
6
5
4
3
2
1
0
10-Year Information Ratio (Net)
Source: Morningstar
Fees Matter
With Canadian equity managers adding only modest value gross of fees, their funds could have
outperformed only with a light expense burden. That more than 70% of Canadian equity funds
outperformed gross of fees but just 13% did so on a net basis suggests most funds charge too much to
come out ahead of the passive alternative. Indeed, high costs weighed down many managers who
performed strongly before fees. BMO Canadian Equity’s information ratio, for example, landed in the 31st
percentile gross of fees, but with an MER averaging 2.33% over the decade, the information ratio fell to
61st on a net-of-fees basis.
Morningstar Manager Research | 7 May 2015
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Exhibit 6: Information Ratio Quintile Range
Gross Information Ratio
Net Information Ratio
Canadian Equity Canadian Small/Mid
Canadian Equity Canadian Small/Mid
Max
4.21
4.55
1.47
3.85
20th
1.64
3.67
-0.34
2.90
40th
0.81
3.18
-0.94
2.22
Median
0.44
2.79
-1.16
1.95
60th
0.33
2.59
-1.67
1.68
80th
-0.13
1.98
-2.57
0.98
Min
-1.94
-0.83
-4.32
-1.50
20/80 Spread
1.77
1.69
1.92
1.80
Max/Min Spread
6.15
5.38
5.35
5.65
On the other hand, moderate fees gave relatively weak performers a boost. PH&N Canadian Equity’s
information ratio went from the 79th to 53rd percentile on a net-of-fees basis thanks to its low MER. And
though Leith Wheeler Canadian Equity was a decent performer gross of fees, it looked markedly better
net of fees. With one of the category’s lowest price tags (the fund is offered without an embedded
trailer fee to DIY investors) its information ratio went from the 40th percentile to the 21st.
The fact nearly all Canadian small/mid-cap equity funds outperformed net of fees does not mean
expenses did not affect relative performance. Indeed, the relationship between MERs and information
ratio was stronger among Canadian small/mid-cap equity funds than it was with Canadian equity funds.
Funds with MERs landing in the cheapest quintile had higher information ratios on average than funds
in the next cheapest quintile and so on. In the Canadian equity category, the relationship between MERs
and information ratios appears stronger in the bottom 60% of the distribution. Having an MER in the
cheapest 40% was not tied to worse outcomes. Exhibit 7 lists the average information ratio by MER
quintile for both categories.
Exhibit 7: Average MER by Information Ratio Quintile
IR Quntile
Canadian Equity MER Canadian Small/Mid-Cap Equity MER
Highest 20%
1.98%
2.19%
20-40
1.91%
2.39%
40-60
2.05%
2.44%
60-80
2.15%
2.50%
Lowest 20%
2.25%
2.98%
Consistency, Downside Protection Tied to Better Outcomes
Investors often cite consistent outperformance as a quality to screen for when selecting a fund manager.
We reviewed “batting average,” which is the proportion of months where the managers outperformed
the benchmark over the 10-year period. We found a fairly strong relationship between batting average
and information ratio for both categories. The R-squared between batting average and information ratio
Morningstar Manager Research | 7 May 2015
Page 7 of 20
approached 60% in both cases. Exhibits 8 and 9 (both on page 7) plot each fund’s batting average and
its information ratios in both categories.
Exhibit 8: Canadian Equity Category, Information Ratio (Net Returns)
vs. Batting Average
70.00
R² = 0.5875
60.00
Batting Average
50.00
40.00
30.00
20.00
10.00
0.00
-5.00
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
10-Year Information Ratio
Source: Morningstar
Exhibit 9: Canadian Small/Mid-Cap Equity Category, Information Ratio
(Net Returns) vs. Batting Average
70.00
60.00
Batting Average
50.00
40.00
R² = 0.5751
30.00
20.00
10.00
0.00
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
10-Year Information Ratio
Source: Morningstar
As in baseball, this investment batting average is only a coarse measure of success. It does not
differentiate between the stock market equivalent of a towering grand slam and a bloop single. Nor
does it make a distinction between a valiant plate appearance that wears the opposing pitcher down
and a weak grounder that ends in a double play. For a closer review of the degree of outperformance in
both positive and negative investment environments, we also measured fund returns using upside and
downside capture ratios.
Better relative performance in down periods, as indicated by low downside capture percentages, was
moderately associated with better information ratios as Exhibits 10 and 11 (both on page 8) indicate. The
Morningstar Manager Research | 7 May 2015
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tendency was stronger among Canadian small/mid-cap equity funds, where the potential for large
losses in less established companies are more prevalent. (The R-squared for the former was 17.4% and
31.3% for the latter.)
Interestingly, when we reviewed the positive market periods, we saw little relationship between upside
capture and information ratios, with R-squareds below 5% for both categories (see Exhibits 12 and 13 on
page 9). Most funds in both categories had upside capture ratios contained within a comparatively small
range. While the downside capture ratio appeared to have more value in explaining outperformance
than the upside capture ratio, batting average appeared to have more explanatory power than both.
Exhibit 10: Canadian Equity Category, Information Ratio (Net Returns)
vs. Downside Capture Ratio
140.00
R² = 17.38%
Dowside Capture Rato (%)
120.00
100.00
80.00
60.00
40.00
20.00
0.00
-5.00
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
10-Year Information Ratio
Source: Morningstar
Exhibit 11: Canadian Small/Mid-Cap Equity Category, Information
Ratio (Net Returns) vs. Downside Capture Ratio
140.00
Downside Capture Ratio (%)
120.00
R² = 0.313
100.00
80.00
60.00
40.00
20.00
0.00
-2.00
-1.00
0.00
1.00
2.00
10-Year Information Ratio
Source: Morningstar
3.00
4.00
5.00
Morningstar Manager Research | 7 May 2015
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It's worth noting that even the best performers don't succeed all the time. The fund with the highest
information ratio in the Canadian equity category, Mawer Canadian Equity, had a batting average of
55%. So, in nearly half the past 120 months, it lagged the TSX. It even lagged over longer periods. There
were 15 of 82 periods (18%) when it trailed the index over a rolling three-year period and 12 of 61
periods (19%) when it trailed over a rolling five-year period. Even among funds that have outperformed
over the long term, investors must be prepared to weather the inevitable performance droughts.
Exhibit 12: Canadian Equity Category, Information Ratio (Net Returns)
vs. Upside Capture Ratio
140.00
R² = 0.0305
Upside Capture Ratio (%)
120.00
100.00
80.00
60.00
40.00
20.00
0.00
-5.00
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
Information Ratio
Source: Morningstar
Exhibit 13: Canadian Small/Mid-Cap Equity Category, Information
Ratio (Net Returns) vs. Upside Capture Ratio
140.00
R² = 0.024
Upside Capture Ratio (%)
120.00
100.00
80.00
60.00
40.00
20.00
0.00
-5.00
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
10-Year Information Ratio
Source: Morningstar
Appendix 3 (page 17) lists the 10-year batting averages, as well as upside/downside capture ratios, for
Canadian equity funds in our sample. Appendix 4 (page 18) does the same for the Canadian small/midcap category.
Morningstar Manager Research | 7 May 2015
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Canada: Investing’s Lake Wobegon?
In one sense, our results fly in the face of theory. Just as Garrison Keillor’s Lake Wobegon, where
everyone is above average, is pure fiction, most funds should not outperform—even gross of fees. After,
all, investing is a zero-sum game. Of course, the Canadian stock market is not composed of only fund
managers. There are other institutional investors and retail investors investing outside a fund structure.
It is possible fund managers as a whole have outsmarted one or both of these groups.
More likely, though, is that funds can "cheat" by investing outside the benchmark representing their
expected (and advertised) hunting ground or it may well be we have used benchmarks not
representative of the fund's true hunting ground.
Both explanations shed light on active small-cap managers’ success versus the benchmark. As the
category’s name indicates, Canadian small/mid-cap equity funds can hold a mix of small- and mid-cap
stocks. On average, the group holds about half their portfolios in small-cap stocks, though that stake
was about 40% a decade ago. (Morningstar defines small cap as having a market cap in the lowest 10%
of the Canadian market, while mid-cap lands in the 70th-90th market-cap percentiles.) The funds hold the
balance in mid- and even large caps, so much so that 85% of funds in the category have been more
correlated to the mid-cap and large-cap dominated S&P/TSX Completion Index than the S&P/TSX Small
Cap. Because mid-cap stocks have outpaced small caps over the 10-year period, the category has had a
big built-in advantage. That the weakest performers had the most pure small-cap portfolios bolsters this
case.
It is the case that the TSX Small Cap index has been notoriously easy to beat. In fact, of the 10 Canadian
dollar denominated small-cap indexes in Morningstar’s database, the index’s 2.1% annualized 10-year
return ranked dead last. Had we compared the funds with other small-cap benchmarks like MSCI
Canada Small Cap, which gained 4.6% annually for the 10-year period, the category would have enjoyed
a less-decisive (albeit still comfortable) victory, with 11 of 46 funds posting negative information ratios
versus the ETF. These benchmarks, however, are not tracked by any ETF, suggesting they may not
represent a realistic opportunity set for fund managers.
In contrast to their small-cap counterparts, active Canadian equity managers have less room to roam. In
part, that is by their own design. To minimize tracking error, many managers limit sector bets and
exclude few of their benchmark’s biggest constituents. Even without such constraints, the large-cap
universe has fewer names to choose from. This does not mean the managers have been beholden to
their benchmarks. On average, active Canadian equity funds had slightly higher exposure to strongerperforming mid-cap stocks than the TSX Capped Composite, giving them a slight advantage.
Active Canadian equity managers also tilted their portfolios toward value stocks. Overall, the category
exhibited a stronger value tilt than the index for the whole period; its average price/earnings ratio and
earnings growth rate were consistently below the TSX Capped Composite’s over the entire period, for
example. The category’s value bent was a plus, as value stocks outperformed their growth counterparts.
Indeed, the category’s best performers, such as Beutel Goodman Canadian Equity and Mawer Canadian
Equity, exhibited strong value bents over the period.
We also examined the impact of country allocation in both categories. The category definitions allow
funds up to 10% non-Canadian exposure. Managers using this freedom tend do so by investing in the
U.S. market, which outperformed Canada’s over the decade. However, we found no relationship
between funds’ non-Canada exposure and performance.
Morningstar Manager Research | 7 May 2015
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Conclusion
The conventional wisdom is investors should favour passive vehicles in more-efficient markets and
consider active management in less-efficient ones. The experience of the past decade gives credence to
this argument. The dismal success rate Canadian equity managers, who focus on the largest (and
presumably most widely owned) stocks in domestic market, have had in adding value after fees stacks
the deck in favour of low-cost passive alternatives. Indeed, the case for passive investing could be
further bolstered in the future as the fees charged on some Canadian ETFs have dropped precipitously in
recent years. If comparable active managers are unable to match the ETF fee reductions, the hurdle for
active management success becomes even more onerous. This isn’t to rule out active management in
the category altogether, though. That most Canadian equity funds outperformed gross of fees means
active management could be an attractive option at the right price.
With nearly all active Canadian small/mid-cap funds outperforming the small-cap benchmark, active
management looks like the easy choice. It may not be the home run investors may presume. For one, it
is not a fait accompli the small-cap benchmark will always look as lousy as it has over the past decade
versus active small-cap managers. Indeed, it performed more strongly relative to the peer group in the
nearly five years of the TSX Small Cap from its May 1999 launch through January 2005, when our study
period ended. Although the index still lagged the category average, its relative strength would have
made it tougher for active managers to compete with a passive alternative, if there had there been one
at the time. Given active managers’ greater reliance on mid-cap stocks historically, fewer would likely
outperform in a small-cap driven rally.
Moreover, investors shouldn’t necessarily interpret active managers’ success versus the TSX Small Cap
as proof of their skill. In addition to weighing strong-performing mid-cap stocks more heavily than the
benchmark, active small-cap managers may have successfully exploited other systematic factors
historically tied to outperformance, such as value, momentum, and quality. Once these factors are taken
into account, it is quite likely fewer active small-cap managers will have demonstrated true skill. Should
index providers create alternative benchmarks that better reflect active managers’ actual hunting
ground, passive alternatives would become more appealing. Given the paucity of compelling passive
alternatives today, however, investors will likely find it more fruitful to compare active managers with
each other rather than against a weak benchmark.
In our follow-up study, we will delve more deeply into the possible sources of small-cap indexes’
apparent weakness, in addition to active managers’ apparent success. To better assess active small-cap
manager skill, we will examine the extent they have benefited from systemic exposures, as opposed to
adept stock-picking. We also will consider active managers’ performance over a longer time period,
which would test their ability to perform in a stronger environment for small caps. While no active fund
shut down over the past decade, many did so in the prior 10-year period. This means the success ratio
for active Canadian small/mid-cap funds would have been lower if our study covered a longer time
frame.
Of course, successful manager selection is more than choosing funds with the highest information ratios
no matter the category. Strong performance, even over a 10-year period, may simply be the result of
happenstance or luck. Reviewing historical performance within the context of a fund’s strategy,
alongside continuity of management and investment approach, as well as fees, improves the odds
success has not been a fluke. K
Morningstar Manager Research | 7 May 2015
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Morningstar Manager Research | 7 May 2015
Page 13 of 20
Appendix 1: Canadian Equity Funds and 10-Year Information Ratios
Fund Name
Gross of Fees
Information
Ratio Percentile
Net of Fees
Information
Ratio Percentile
Expenses
Average
MER Percentile
Acker Finley Select Canada Focus
-0.6
88.00
-2.03
69.00
2.12
43.10
AGF Canada Class
Beutel Goodman Canadian Equity
Class D
-0.1
81.10
-2.58
81.10
2.79
94.80
1.1
22.50
0.16
6.90
1.40
22.40
BMO Canadian Equity
0.9
36.30
-1.69
62.10
2.33
51.70
BMO Canadian Equity Class
1.0
34.50
-1.74
63.80
2.44
58.60
BMO Canadian Large Cap Eq Mut
BMO CDN Stock Selection Fd Srs
NBA
1.1
29.40
-1.67
60.40
2.44
60.30
-0.1
75.90
-2.57
77.60
1.91
32.70
CIBC Canadian Equity
-0.8
89.70
-4.20
98.30
2.33
50.00
CIBC Canadian Equity Value
Desjardins Canadian Equity
Growth
-1.4
96.60
-2.85
88.00
2.10
41.30
0.5
44.90
-2.38
75.90
2.21
46.50
Desjardins Canadian Equity Value
0.3
60.40
-1.65
58.70
2.47
62.00
Desjardins Environment
2.6
10.40
0.21
5.20
2.37
55.10
DFA Canadian Core Equity A
-0.3
84.50
-2.57
79.40
1.53
27.50
Educators Growth
1.0
32.80
-0.83
36.30
1.65
29.30
FÉRIQUE Equity
Fidelity Canadian Disciplined Eq Cl
A
Fidelity Canadian Disciplined Eq
Ser A
0.3
63.80
-0.97
43.20
0.80
1.70
4.2
1.00
0.05
10.40
2.57
77.50
4.1
1.80
0.14
8.70
2.48
63.70
Fidelity True North Cl A
2.8
6.90
-0.11
19.00
2.57
79.30
Fidelity True North Sr A
Fiera Capital Core Canadian Equity
B
First Trust Cdn Capital Strength
Port F
2.8
8.70
-0.05
15.60
2.51
68.90
1.6
20.70
-0.85
38.00
1.98
36.20
0.2
67.30
-0.94
39.70
1.26
15.50
FMOQ Canadian Equity
0.1
69.00
-0.54
24.20
0.95
5.10
Franklin Bissett All Cdn Focus A
Franklin Bissett All Cdn Focus Corp
Cl A
Franklin Bissett Canadian Equity
Class F
Franklin Bissett Cdn Equity Corp
Class A
1.8
17.30
0.02
12.10
2.61
82.70
1.8
15.60
-0.01
13.80
2.63
84.40
1.1
25.90
0.34
3.50
1.25
13.70
1.0
31.10
-0.50
20.70
2.53
72.40
HSBC Equity Investor
0.3
62.10
-2.06
70.70
2.00
37.90
IG FI Canadian Equity C
3.2
5.20
-1.16
50.00
2.92
98.20
IG Fidelity Canadian Equity Class A
3.6
3.50
-0.64
31.10
2.74
89.60
IG Franklin Bissett Canadian Eq A
1.1
24.20
-0.52
22.50
2.70
86.20
Morningstar Manager Research | 7 May 2015
IG Franklin Bissett Canadian Eq Cl
A
Page 14 of 20
1.1
27.60
-0.56
25.90
2.72
87.90
Investors Quebec Enterprise C
Investors Quebec Enterprise Class
A
Leith Wheeler Canadian Equity
Series B
0.4
51.80
-1.21
51.80
2.90
96.50
0.4
50.00
-1.10
46.60
2.75
93.10
0.8
38.00
-0.06
17.30
1.51
25.80
Mackenzie Cdn All Cap Value Inv
0.2
65.60
-1.48
56.90
1.97
34.40
Mawer Canadian Equity A
2.4
12.10
1.47
1.00
1.24
12.00
MD Select
-1.4
98.30
-2.70
82.80
1.48
24.10
MDPIM Canadian Equity Pool
National Bank AltaFund
Investment Corp.
0.4
56.90
-1.11
48.30
1.37
20.60
0.6
43.20
-1.30
55.20
2.53
74.10
National Bank Canadian Equity
National Bank Canadian Equity
Growth
-1.1
94.90
-3.57
94.90
2.39
56.80
0.7
41.40
-2.34
74.20
2.48
65.50
NEI Ethical Canadian Equity A
0.8
39.70
-0.56
27.60
2.52
70.60
Norrep All Cap Quant Class
0.1
70.70
-1.90
67.30
3.07
100.00
PH&N Canadian Equity Sr D
-0.1
79.40
-1.29
53.50
1.15
8.60
PH&N Canadian Growth Sr D
PH&N Community Values Cdn
Equity Sr D
-1.9
100.00
-2.90
89.70
1.19
10.30
0.5
46.60
-0.57
29.40
1.30
17.20
PH&N Vintage Sr D
-0.1
82.80
-0.76
34.50
1.66
31.00
Professionals Canadian Equity
Quadrus Canadian Growth
(GWLIM) Q
0.0
72.50
-1.79
65.60
1.09
6.80
0.0
74.20
-2.77
86.30
2.61
81.00
RBC Canadian Equity Sr A
RBC Private Canadian Equity Pool
Sr F
RBC Private Canadian Growth Eq
Pool Sr F
1.7
19.00
-3.92
96.60
2.01
39.60
2.1
13.80
0.83
1.80
0.69
1.00
0.5
48.30
-0.72
32.80
0.91
3.40
Renaissance Canadian Growth
-1.0
93.20
-2.95
91.40
2.53
75.80
Russell Canadian Equity Pool Sr A
-0.1
77.60
-4.32
100.00
2.75
91.30
SEI Canadian Equity Class P
0.4
53.50
-3.34
93.20
2.49
67.20
Sun Life MFS Canadian Equity D
0.4
55.20
-1.07
44.90
1.37
18.90
TD Canadian Blue Chip Equity - I
-0.9
91.40
-2.74
84.50
2.31
48.20
TD Canadian Value - I
Trimark Canadian Opportunity
Class
-0.4
86.30
-2.09
72.50
2.16
44.80
0.4
58.70
-0.95
41.40
2.35
53.40
Morningstar Manager Research | 7 May 2015
Page 15 of 20
Appendix 2: Canadian Small/Mid-Cap Equity Funds and 10-Year Information Ratios
Fund Name
Gross of Fees
Information
Ratio Percentile
Net of Fees
Information
Ratio Percentile
Expenses
Average
MER Percentile
AGF Canadian Growth Equity Class
1.19
91.2
0.07
93.40
2.95
82.3
AGF Canadian Small Cap
2.33
62.3
1.38
68.90
2.79
66.7
Beutel Goodman Small Cap D
3.58
24.5
3.14
11.20
1.43
4.5
BirchLeaf Growth
-0.83
100
-1.50
100.00
2.81
68.9
BMO Canadian Small Cap Equity
3.93
13.4
3.20
8.90
2.45
35.6
BMO Enterprise Classic
4.21
4.5
3.55
4.50
2.21
24.5
CIBC Canadian Small-Cap
3.24
35.6
2.17
44.50
2.53
48.9
Desjardins Canadian Small Cap Equity
3.45
28.9
2.48
31.20
2.22
26.7
Dynamic Small Business
3.18
40
2.42
35.60
3.06
86.7
Fidelity Canadian Opportunities Cl A
2.79
51.2
1.97
48.90
2.64
57.8
Fidelity Canadian Opportunities Sr A
2.78
53.4
2.01
46.70
2.52
46.7
Fiera Capital Equity Growth B
4.48
2.3
3.85
1.00
1.66
13.4
Fiera Capital QSSP II Investment Inc.
1.03
93.4
0.32
86.70
2.93
80
Franklin Bissett Canadian High Div F
1.37
84.5
1.10
75.60
1.34
2.3
Franklin Bissett Microcap Class F
2.95
42.3
2.33
37.80
2.38
31.2
Franklin Bissett Small Cap Corp Cl A
2.11
75.6
1.25
73.40
2.86
75.6
Franklin Bissett Small Capital Class F
2.15
68.9
1.68
62.30
1.77
15.6
GBC Canadian Growth
2.79
48.9
2.17
42.30
1.93
17.8
HSBC Small Cap Growth Investor
3.59
22.3
2.87
22.30
2.32
28.9
IA Clarington Canadian Small Cap A
2.65
57.8
1.89
53.40
2.84
73.4
IG AGF Canadian Diversified Growth C
1.32
86.7
0.09
91.20
3.13
91.2
IG AGF Canadian Diversified Growth Cl A
IG Beutel Goodman Canadian Small Cap
C
1.29
88.9
0.11
88.90
3.01
84.5
3.67
20
2.44
33.40
3.13
91.2
Investors Canadian Small Cap C
2.12
73.4
0.66
84.50
2.90
77.8
Investors Canadian Small Cap Class A
2.14
71.2
0.76
82.30
2.77
64.5
Mackenzie Cdn Sm Cap Value Inv
2.07
77.8
1.46
66.70
2.00
20
Manulife Growth Opportunities Class
3.50
26.7
2.22
40.00
2.77
60
Marquest Small Companies
0.41
95.6
-0.26
95.60
3.46
95.6
Marquest Small/Mid Cap
-0.69
97.8
-1.29
97.80
2.82
71.2
Mawer New Canada A
4.09
6.7
3.72
2.30
1.46
6.7
National Bank Quebec Growth Fund
3.35
31.2
2.75
24.50
2.41
33.4
NEI Ethical Special Equity A
2.59
60
1.85
55.60
2.77
62.3
NEI Northwest Specialty Equity A
2.75
55.6
1.68
60.00
2.61
55.6
Norrep
4.05
8.9
3.24
6.70
2.49
42.3
Morningstar Manager Research | 7 May 2015
Page 16 of 20
Norrep II
4.55
1
2.94
15.60
4.02
100
RBC Private Canadian Mid Cap Eq Pl Sr F
2.79
46.7
2.68
28.90
0.71
1
Redwood Diversified Equity
2.83
44.5
1.63
64.50
3.46
97.8
Redwood Diversified Income
1.98
80
1.06
77.80
3.29
93.4
Renaissance Canadian Small Cap
ROI Canadian Top 30 Sm Cap Picks Sr C7
3.80
15.6
2.75
26.70
2.54
51.2
3.68
17.8
2.96
13.40
2.18
22.3
Scotia Canadian Small Cap
1.80
82.3
0.98
80.00
2.46
37.8
SEI Canadian Small Co Equity Cl P
3.24
37.8
1.94
51.20
2.52
44.5
Standard Life Canadian Small Cap A
2.29
64.5
1.35
71.20
2.55
53.4
STYLUS Growth
2.17
66.7
1.76
57.80
1.55
11.2
STYLUS Momentum
3.30
33.4
2.90
20.00
1.55
8.9
TD Canadian Small Cap Equity - I
4.04
11.2
2.93
17.80
2.48
40
Morningstar Manager Research | 7 May 2015
Page 17 of 20
Appendix 3: Canadian Equity Funds, 10-Year Batting Averages, Upside and Downside Capture Ratios
Information
Ratio (Net)
Upside
Capture
Ratio (%)
Down
Capture
Ratio
(%)
Batting
Average
(%)
Acker Finley Select Canada Focus
-2.03
104.81
130.08
40.00
AGF Canada Class
-2.58
79.52
88.40
35.83
Beutel Goodman Canadian Equity Class D
0.16
88.32
79.19
50.83
BMO Canadian Equity
-1.69
87.27
90.22
40.00
BMO Canadian Equity Class
-1.74
87.33
90.66
38.33
BMO Canadian Large Cap Eq Mut
-1.67
87.06
89.48
38.33
BMO CDN Stock Selection Fd Srs NBA
-2.57
93.18
103.28
41.67
CIBC Canadian Equity
-4.20
90.69
105.49
35.00
CIBC Canadian Equity Value
-2.85
78.88
94.30
40.00
Desjardins Canadian Equity Growth
-2.38
97.97
109.61
49.17
Desjardins Canadian Equity Value
-1.65
97.80
111.30
47.50
Desjardins Environment
0.21
102.86
103.13
50.83
DFA Canadian Core Equity A
-2.57
96.87
107.07
43.33
Educators Growth
-0.83
89.71
88.65
40.00
FÉRIQUE Equity
-0.97
101.44
101.94
52.50
Fidelity Canadian Disciplined Eq Cl A
0.05
101.80
102.11
53.33
Fidelity Canadian Disciplined Eq Ser A
0.14
92.66
85.82
44.17
Fidelity True North Cl A
-0.11
91.57
87.11
41.67
Fidelity True North Sr A
-0.05
100.55
105.55
46.67
Fiera Capital Core Canadian Equity B
-0.85
129.32
129.88
60.00
First Trust Cdn Capital Strength Port F
-0.94
96.30
100.72
48.33
FMOQ Canadian Equity
-0.54
98.54
98.04
55.83
Franklin Bissett All Cdn Focus A
0.02
97.12
96.11
55.83
Franklin Bissett All Cdn Focus Corp Cl A
-0.01
96.78
90.52
53.33
Name
Franklin Bissett Canadian Equity Class F
0.34
78.64
75.96
49.17
Franklin Bissett Cdn Equity Corp Class A
-0.50
110.13
101.98
52.50
HSBC Equity Investor
-2.06
89.13
94.84
44.17
IG FI Canadian Equity C
-1.16
98.96
103.90
48.33
IG Fidelity Canadian Equity Class A
-0.64
99.38
101.89
50.00
IG Franklin Bissett Canadian Eq A
-0.52
91.88
92.97
50.83
IG Franklin Bissett Canadian Eq Cl A
-0.56
91.14
92.14
50.83
Investors Quebec Enterprise C
-1.21
80.98
84.78
43.33
Investors Quebec Enterprise Class A
-1.10
80.49
82.72
44.17
Leith Wheeler Canadian Equity Series B
-0.06
93.19
89.92
49.17
Morningstar Manager Research | 7 May 2015
Page 18 of 20
Mackenzie Cdn All Cap Value Inv
-1.48
94.31
102.79
50.00
Mawer Canadian Equity A
1.47
92.10
72.12
54.17
MD Select
-2.70
96.79
116.78
44.17
MDPIM Canadian Equity Pool
-1.11
95.96
100.45
50.00
National Bank AltaFund Investment Corp.
-1.30
104.81
119.85
50.00
National Bank Canadian Equity
-3.57
82.37
96.29
32.50
National Bank Canadian Equity Growth
-2.34
95.63
106.48
43.33
NEI Ethical Canadian Equity A
-0.56
76.91
70.30
44.17
Norrep All Cap Quant Class
-1.90
96.69
116.19
45.83
PH&N Canadian Equity Sr D
-1.29
95.94
102.52
45.83
PH&N Canadian Growth Sr D
-2.90
86.65
104.92
37.50
PH&N Community Values Cdn Equity Sr D
-0.57
94.65
96.19
44.17
PH&N Vintage Sr D
-0.76
102.85
124.90
53.33
Professionals Canadian Equity
-1.79
98.41
105.16
41.67
Quadrus Canadian Growth (GWLIM) Q
-2.77
89.71
102.39
35.83
RBC Canadian Equity Sr A
-3.92
95.96
103.37
34.17
RBC Private Canadian Equity Pool Sr F
0.83
97.20
91.79
55.00
RBC Private Canadian Growth Eq Pool Sr F
-0.72
94.30
94.94
50.00
Morningstar Manager Research | 7 May 2015
Page 19 of 20
Appendix 4: Canadian Small/Mid-Cap Equity Funds, 10-Year Batting Averages, Upside and Downside
Capture Ratios
Information
Ratio (Net)
Upside
Capture
Ratio (%)
Down
Capture
Ratio (%)
Batting
Average
(%)
AGF Canadian Growth Equity Class
0.07
85.90
85.13
46.67
AGF Canadian Small Cap
1.38
93.42
79.72
52.50
Name
Beutel Goodman Small Cap D
3.14
91.10
61.15
60.00
BirchLeaf Growth
-1.50
100.60
128.62
45.83
BMO Canadian Small Cap Equity
3.20
112.15
78.42
63.33
BMO Enterprise Classic
3.55
93.18
52.94
64.17
CIBC Canadian Small-Cap
2.17
94.03
76.44
60.00
Desjardins Canadian Small Cap Equity
2.48
100.73
82.71
60.83
Dynamic Small Business
2.42
70.50
30.65
53.33
Fidelity Canadian Opportunities Cl A
1.97
77.35
51.80
52.50
Fidelity Canadian Opportunities Sr A
2.01
69.31
45.53
56.67
Fiera Capital Equity Growth B
3.85
57.71
47.88
50.83
Fiera Capital QSSP II Investment Inc.
0.32
68.34
49.02
52.50
Franklin Bissett Canadian High Div F
1.10
67.37
46.51
45.83
Franklin Bissett Microcap Class F
2.33
87.13
72.67
51.67
Franklin Bissett Small Cap Corp Cl A
1.25
90.30
71.04
53.33
Franklin Bissett Small Capital Class F
1.68
74.06
53.17
53.33
GBC Canadian Growth
2.17
88.32
64.87
52.50
HSBC Small Cap Growth Investor
2.87
92.42
60.62
58.33
IA Clarington Canadian Small Cap A
1.89
72.91
44.38
49.17
IG AGF Canadian Diversified Growth C
0.09
85.73
84.62
48.33
IG AGF Canadian Diversified Growth Cl A
0.11
83.45
81.59
49.17
IG Beutel Goodman Canadian Small Cap C
2.44
88.24
64.47
60.00
Investors Canadian Small Cap C
0.66
94.19
90.35
53.33
Investors Canadian Small Cap Class A
0.76
94.11
89.50
55.83
Mackenzie Cdn Sm Cap Value Inv
1.46
96.04
81.06
60.00
Manulife Growth Opportunities Class
2.22
97.96
82.00
55.00
Marquest Small Companies
-0.26
90.33
100.18
44.17
Marquest Small/Mid Cap
-1.29
77.24
101.59
44.17
Mawer New Canada A
3.72
94.02
51.31
65.00
National Bank Quebec Growth Fund
2.75
80.98
40.65
55.00
NEI Ethical Special Equity A
1.85
73.01
44.89
50.00
Morningstar Manager Research | 7 May 2015
Page 20 of 20
NEI Northwest Specialty Equity A
1.68
98.32
84.90
58.33
Norrep
3.24
107.80
75.30
59.17
Norrep II
2.94
105.56
80.40
60.83
RBC Private Canadian Mid Cap Eq Pl Sr F
2.68
87.29
60.74
54.17
Redwood Diversified Equity
1.63
92.38
75.46
57.50
Redwood Diversified Income
1.06
67.44
49.34
50.83
Renaissance Canadian Small Cap
2.75
97.52
74.98
63.33
ROI Canadian Top 30 Sm Cap Picks Sr C-7
2.96
101.55
73.36
62.50
Scotia Canadian Small Cap
0.98
100.11
92.28
50.00
SEI Canadian Small Co Equity Cl P
1.94
96.94
84.69
56.67
Standard Life Canadian Small Cap A
1.35
99.73
88.10
54.17
STYLUS Growth
1.76
81.30
59.62
50.83
STYLUS Momentum
2.90
89.48
55.40
59.17
TD Canadian Small Cap Equity - I
2.93
97.21
74.87
60.00