What are we looking for?
Canadian-listed actively managed ETFs in less common, or tougher to manage, fund categories.
The screen
For DIY investors, investing in a basket of stocks is typically ground zero. Long-only positions in large-cap publicly traded companies offer the transparency and liquidity for motivated investors to proceed with relative confidence. Passive and all-in-one ETFs (the latter being those that invest in a diversified portfolio of stocks and bonds) have also made it exceptionally easy for the everyday investor to gain broad exposure to a diversified portfolio that, if held long enough, is likely to result in reasonable returns over time.
That said, there are areas of the portfolio that may require a bit more skill and know-how to manage effectively should an investor wish to gain exposure. Individual bonds, for example, have a less transparent market and require some level of skill to not only trade but manage. Along this vein, today I use Morningstar Direct to screen for actively managed ETFs in areas outside the more plain-vanilla fund categories that might help augment core stock portfolios.
To do so, I first screened the universe of 1,400 or so ETFs traded in Canada for those that are actively managed and have received a five-star rating. Recall that the star rating (formally named the Morningstar Rating for Funds) is an objective comparison of after-fee risk-adjusted returns against category peers. Though the rating is backward-looking, our data shows that, on aggregate, funds with a five-star rating have outperformed those with four stars, which have in turn outperformed those with three stars, etc., after receiving the rating. This initial screen resulted in roughly 50 active ETFs. From here I removed balanced ETFs and ETFs that belong to plain-vanilla equity categories such as U.S., Canadian and global equities.
What we found
The funds and ETFs that qualified in the screen are listed in the table accompanying this article, alongside categories, MERs, trailing performance, inception dates, broad asset class exposure and ratings. The list is sorted first by asset class then by fund category. Investors are urged to first look at the category to which each fund belongs, given that Morningstar’s ratings are meant to measure performance against category peers. I note that negative asset class exposure implies that the ETF holds a short position.
This article does not constitute financial advice. It is always recommended to conduct one’s own independent research before buying or selling any of the funds or ETFs mentioned in this article.
Ian Tam, CFA, is director of investment research for Morningstar Canada.
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