What are we looking for?
Index beaters among Canadian equity funds.
With low-fee exchange-traded funds challenging mutual funds for customers, let's see which funds have outpaced the S&P/TSX total return index over five years. After all, the fund industry urges investors to think longer term.
The screen
We looked for the 15 best returns among Canadian equity funds for the five years ended June 30. U.S. dollar, segregated and duplicate versions of funds were excluded, as well as funds not sold to the general public.
What did we find?
Two out of five funds that outpaced the 5.7-per-cent annualized return by the index were ETFs.
Claymore Canadian Fundamental ETF, whose stocks are chosen according to criteria such as dividends, cash flow, sales and book equity value, gained 6.9 per cent. And iShares S&P/TSX 60 ETF, which tracks the 60 largest Canadian-listed companies, returned nearly 6 per cent.
Among the index beaters, Mawer Canadian Equity, which is run by Jim Hall of Mawer Investment Management Inc., led the way with a 7.1-per-cent gain. Mr. Hall has been cautious on commodity stocks, a stance that helped his fund gain 8.5 per cent for the first six months of this year.
A common thread among many of the outperformers was low fees, with most charging well below 2 per cent. But IA Clarington Canadian Leaders still beat the index with a 6.3-per-cent annualized gain despite charging 2.4 per cent annually.
In an unusual turn of events, however, Pierre Bernard, who has managed that fund since 1999, was removed from his job on June 10. "I was fired," he said in an interview.
Mr. Bernard was caught by surprise by the decision, but acknowledged his fund has underperformed in the shorter term. It did not help that he also owned the beleaguered shares of Research In Motion.
Eric Frape, an executive with IA Clarington Investments, said the firm "parted ways" with Mr. Bernard partly because Dan Bastasic, a prized new hire recently poached from Mackenzie Financial Corp., is a "better fit" to run Mr. Bernard's two other income-oriented fund mandates. And manager Marc Gagnon has been given the IA Clarington Canadian Leaders fund because he achieved a similar 6.2-per-cent annual return over five years on his IA Ecoflex Canadian Equity Growth segregated fund, and has a better short-term record, Mr. Frape said.
It looks like taking a long-term approach doesn't necessarily apply to fund companies.