What are we looking for?
Canadian ETFs that performed well during the past two periods when the U.S. imposed tariffs on select Canadian goods.
The screen
As we navigate the current economic landscape, investors are keenly aware of the potential effects of international trade policies. With the U.S. having imposed tariffs on Canadian goods during two notable recent periods (June 1, 2018 – May 17, 2019, and Aug. 16, 2020 – Oct. 27, 2020), one reasonable analysis might be to understand which investments fared best during these times of turbulence.
Though there are many factors at play (such as sector exposure, currency hedging), an initial understanding of which funds did well might serve as a reasonable starting point for further research. To this end, today I use Morningstar Direct to screen for Canadian-listed ETFs that shone through during those two periods.
More specifically, I first screened our universe of ETFs (which consists of 1,588 ETFs) for those with inception dates prior to June 1, 2018. I then noted the total returns for all funds during the weeks that coincided with active tariffs being placed on Canadian goods by our southernly neighbours. I then ranked the ETFs based on their performance during each tariff period, giving a weight of 70 per cent to the first tariff period and 30 per cent to the second. I note importantly that tariffs applied to Canadian steel and aluminum during the first year-long period, and only on Canadian aluminum during the second period (which lasted just a few months).
Finally, to ensure we highlight ETFs that not only weathered the tariffs well but also performed at least as well as their category peers, I screened for ETFs that received a Morningstar Rating of three stars or better. The star ratings provide an objective look at risk-adjusted returns after fees, using up to 10 years of history where available, with an emphasis on the most recent three years of performance.
What we found
The top 20 ranked ETFs based on the above weightings and that met my screening criteria are listed in the table accompanying this article, alongside their fees, categories, performance and ratings. I’ve also noted in the table whether each ETF is actively managed (where a human portfolio manager is involved in stock selection), passively managed (where the fund follows a traditional benchmark index) or strategic beta (a hybrid approach where the fund follows a set of preconstructed rules to grant active exposure).
Finally, readers will notice in the table the Morningstar’s Medalist rating, a forward-looking qualitative assessment of a fund’s ability to outperform peers after fees in the future based on our assessment of the parent (the stewardship qualities of the fund company), the people (the track record and tenure of portfolio managers) and process (the consistency of process and risk-mitigation techniques).
This article does not constitute financial advice, readers are encouraged to conduct their own independent research before buying or selling any of the ETFs listed here, or otherwise.
Ian Tam, CFA, is director of investment research for Morningstar Canada.