Canadian companies have more than $600-billion on their balance sheets. As a percentage of gross domestic product, corporate cash has almost doubled since 2000.Getty Images/iStockphoto
Lipper Fund Awards have traditionally been associated with mutual funds, but the net has now been cast wider to include exchange-traded funds.
"ETFs are a burgeoning asset class," said Jeff Tjornehoj, head of Americas research for Lipper Inc. "They are getting more interest by retail investors. Those are the people who use ratings to help them make decisions about their investments."
While traditional ETFs tracked market-capitalization-weighted indexes, new iterations are multiplying. Some ETFs give the same weighting to all companies in an index. A new breed of fundamental ETF screens companies using factors such as cash flow, earnings and dividend growth.
Lipper awards are handed out annually in 13 countries, or regions if funds are cross-border offerings. At a recent ceremony in Toronto, Canada became the first one to list ETF winners. "We are also looking at the U.S. and U.K.," Mr. Tjornehoj said. The methodology used for assessing mutual funds is the same as for ETFs.
The Lipper awards go to funds that generate strong returns with lower risk than their peers, as determined by a computer-generated test. While the three-year winners receive the fanfare, awards also go to funds with five- and 10-year records.
ETFs have become more popular because they have lower fees compared with actively managed mutual funds, tax efficiency due to low stock turnover, and the ability to be bought and sold quickly like a stock, Mr. Tjornehoj said.
This year, the ETF Lipper winners came from 10 categories. There must be at least five ETFs within a category, and they must have at least a three-year track record. Canadian-listed ETFs have been given Lipper ratings since 2006.
While ETFs tracking the S&P 500 index of U.S. large-company stocks can often beat the returns of actively managed mutual funds, that doesn't always happen. In fact, Lipper mutual fund winner Beutel Goodman American Equity posted better returns than a competing ETF. It gained an annualized 22.93-per-cent return for three years ending July 31, compared with the Horizons S&P 500 Index ETF, with a comparable 18.9-per-cent return.
Similarly, Beutel Goodman Canadian Dividend Fund, which posted an annualized return of 15.97 per cent for the three years, outpaced the PowerShares Canadian Dividend Index ETF, which gained an annual 14.94-per-cent return. Lower-than-normal fees charged by the Beutel Goodman funds undoubtedly played a role.
Some ETFs or mutual funds can post negative returns but wind up as Lipper winners. That is because a winner can be the best fund within a category that has experienced a slump or bear market. For example, the ETF winner in the natural resources equity category was iShares S&P/TSX Global base Metals ETF. It lost an annualized 4.41 per cent for the three years. Base-metals stocks have struggled in recent years because of the slowdown in global growth and China's economy.
Horizons NYMEX Crude Oil ETF, which lost an annualized 0.16 per cent over three years, won a Lipper award in the commodity group. Investors should be aware that this category includes individual commodity ETFs that track the prices of oil, natural gas, gold and silver, as well as broad commodity ETFs, Mr. Tjornehoj noted. It would be wrong to assume that the winning ETF would be a good place to park some money now, he said, because each commodity is affected by different factors.
Among Canadian equity ETFs, the Lipper winner was iShares Jantzi Social Index ETF, which invests in companies screened for environmental and social factors.
"We don't screen out styles or construction methods to say they don't matter," he said. "We think that everybody has a fair shot to win an award."