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The best fund families

One way to gauge top companies is to look at average 10-year returns of their equity funds, ROB CARRICK writes

The best fund family in Canada is Saxon Mutual Funds, a tiny company with some of the best long-term performance numbers in the business.

Saxon heads a list of the Top 10 fund families that includes both the fund industry's smallest and largest players. AIM Funds Management Inc. and Mackenzie Financial Corp. are on the list, as are Fidelity Investment Canada Ltd. and Franklin Templeton Investments Corp.

Now, let the controversy begin. You can't possibly select the best fund companies without having to face up to a million questions and counter-arguments.

The most important question: On what basis were these families judged to be the best?

There are any number of ways to do an analysis like this, but for this one, we decided to use the performance of each family's equity funds as a basis for comparison.

Equity funds are a fund family's meat, potatoes and dessert. Sure, there are bond funds and money-market funds in the mix, but who chooses a fund company because it rules in either of these categories?

For investors, a fund company with a great overall record for its equity funds offers both convenience and simplicity in building a portfolio.

For example, Saxon's Canadian and global equity funds might work well as the foundation of a portfolio, along with a sprinkling of the family's Canadian small-cap fund.

Portfolio-building would be even easier with the larger selection of funds at the heavyweight families that made the Top 10 list.

To narrow the focus for this comparison, we looked at equity-fund performance for the 10 years to Dec. 31, 2001. A five-year horizon would have allowed more fund companies into the comparison, while a 15-year comparison would have reduced the field drastically but also provided more reliable data. As a compromise, a 10-year span works fine.

The actual mechanics used here are simple. Fund analyst Tilly Cheung of Bell Globemedia Interactive took all of each company's equity funds -- including Canadian, U.S. and global funds, as well as specialty funds in areas like technology, emerging markets and natural resources -- and then averaged their 10-year returns.

A few fund companies had to be weeded out at this point. You want controversy? How about the decision to cut AIC Ltd., a hard-charging company with about $14.7-billion in assets.

AIC now offers 110 fund variants, according to, but only two were equity funds with a 10-year record. Those funds, AIC Advantage and AIC Value, averaged a superb 16.3 per cent over the past decade, but two funds is too few to get you a best fund-company prize (three funds was the minimum).

Another casualty was ABC Funds, which would have won the competition with a stellar average annual 10-year return of 19 per cent. The problem? You need $150,000 to buy into an ABC Fund, plus there are only two ABC funds with 10-year numbers.

Chou Associates Management Inc., a company with two funds that together averaged 15.1 per cent, was also eliminated. Same for Northwest Mutual Funds Inc., which had a single fund that made an average 16.2 per cent a year over the past 10 years.

Other top-performing fund companies that got chopped for similar reason include the Independent Order of Foresters, Maestral and Dominion Equity Resource Fund Inc.

Of the fund families that remained, Saxon was a clear winner, with an average 10-year fund-family return of 14.4 per cent.

In a moment, we'll look at the surprising consistency of Saxon's three equity funds with a 10-year record. First, though, a justification for comparing Saxon, the fund industry equivalent of an amoeba, with giants such as Investors Group, AIM and Mackenzie.

In theory, it should be easier for a company to manage smaller funds, and a smaller number of funds. With less assets to invest, a manager can be pickier and nimbler in her or his stock selection. With fewer funds to oversee, a fund family should be able to achieve a higher level of uniformly good performance.

Initially, there was a plan to divide the fund families into big, medium and small categories, and then limit the comparison to families within each category.

Then an odd thing happened. In reading the 10-year average return numbers, it became apparent that there was little correlation between family size and performance.

Put another way, there were several big fund families with good long-term average numbers, and many small families that didn't have a clue. In the end, four of the top 10 fund companies also ranked among the 10 largest companies by assets.

As for Saxon, it's a small, no-load fund company with very big returns. For the 10 years to Dec. 31, its Saxon Stock Fund produced a compound average annual return of 15.5 per cent while the benchmark Toronto Stock Exchange 300 total return index made 10.4 per cent and the average Canadian equity fund made 10 per cent.

Same story for Saxon Small Cap -- it was up 14.5 per cent annually for the 10-year period, compared to 8.7 per cent for the average fund in the category and 9.8 per cent for the benchmark Nesbitt Burns Canadian Small-Cap Index.

Saxon World Growth, the third and final fund in the family with a 10-year track record, made 13.3 per cent a year over the past decade, almost four percentage points more than the average fund in the global-equity category.

Here's some more perspective on how these number stack up against the competition. Saxon Stock was fourth-best of 71 Canadian equity funds over the past decade, Saxon World Growth was seventh out of 34 global equity funds and Saxon Small Cap was fourth out of 20 in the Canadian small-cap category.

The next best fund families, as judged by their equity-fund records, were Phillips, Hager & North Investment Management Ltd., at 13.2 per cent, followed by Mawer Mutual Funds of Calgary, whose three funds considered in this analysis averaged 11.8 per cent over the past 10 years.

Just a tick behind, at 11.6 per cent, was the first of the big fund companies to make the Top 10 list: Franklin Templeton Investments. This family's high ranking is a notable achievement because it had nine funds, including the largest fund by assets in Canada (Templeton Growth) and another huge fund, Templeton International Stock.

The $9.3-billion Templeton Growth Fund's 10-year compound average annual return of 12 per cent is about 2.5 points higher than the average global equity fund.

Rounding out the Top 10 is a group of large- and medium-sized fund companies: Fidelity, Empire Financial Group, Mackenzie and AIM (tied for seventh), Spectrum Investments Management Ltd. and, in a tie for 10th spot, Dynamic Mutual Funds Ltd. and GGOF Guardian Group of Funds Ltd. Mackenzie deserves special mention here for managing a Top 10 finish with the largest stable of funds -- 14 in total.

While the point of this exercise is to highlight the best fund families, it would be remiss not to at least take a passing glance at the sick and the lame as well.

The worst 10-year average return for a fund family's equity funds over the past decade goes to Sagit Management Ltd. Somehow, Sagit managed to lose an average 7.8 per cent a year. Manulife Financial clocked in with an average 6.6 per cent for its funds with 10-year records..

Canada's largest fund family, Investors Group, produced an average equity fund return for the past 10 years of 7.8 per cent.

Investors Group has one superstar fund -- Investors U.S. Large Cap Value -- one of the best-performing U.S. equity funds in the country. There were also some reasonably good Canadian and global funds in the mix, but the overall numbers were dragged down by several sub-mediocre entries.

Consistency -- that's what separates the best fund families from the rest.
Here are the best fund families, as measurered by the average performance of their equity funds over the 10 years to Dec. 31, 2001

                      Average 10-year            Number of

    Family            equity-funds return      funds considered

1.  Saxon                   14.4%                    3

2.  PH&N                    13.2                     6

3.  Mawer                   11.8                     3

4.  Franklin Templeton      11.6                     9

5.  Fidelity                11.3                     4

6.  Empire Financial Group  11.2                     4

7*. AIM                     10.9                     7

7*. Mackenzie               10.9                    14

9.  Spectrum                10.4                     9

10*.Dynamic                 10.2                     8

10*.GGOG Guardian Group     10.2                     5


© 2007 The Globe and Mail. All rights reserved.

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