Time travel: Morningstar rates quarter-century club

(May 21, 2004) In today’s 5,000-plus mutual fund universe, it’s hard to fathom a time when the Canadian market consisted of just 120 funds. But that was in the case in 1979 and Morningstar Canada has done a bit of number-crunching to see how those veteran funds performed over the past 25 years.

Three of the top four funds with 25-year track records are either global equity or U.S. equity funds, the researcher found. MD Growth Investments topped with the list, with a compound annual return of 13.7%, as of April 30. Mackenzie Cundill Value Series A posted a 13.5% return, while Investors U.S. Large Cap Value C and Empire Equity Growth #3 both had a 13.2% return.

“The quarter-century club affirms some of the axioms of investing,” says Morningstar investment funds editor Rudy Luukko. “Equities win out over the long haul, and there is a relationship, however imperfect, between higher risk and higher reward.”

Of the 44 funds invested in Canadian stocks, returns ranged from 5.8% to 13.2%. In the U.S. equity category, the median 25-year return of 10.9%, produced by CI American Value, was 90 basis points higher than the median Canadian equity fund over the same period.

Only three of the six global funds with a 25-year history managed to beat the median U.S. equity fund performance. The dozen balanced funds had returns ranging from 6.6% to 9.7%.

Fixed-income funds had generally lower returns than their equity counterparts, however the category leaders — Altamira Income and Phillips Hager & North Bond Series A — boasted 10.2% returns.

Money market funds managed returns of between 7% and 8%, far superior to current yields, Luukko notes, which have hovered around 2% over the past few years. “It’s another reminder that while 25 years of history offers valuable perspectives, it is a flawed mirror of what to expect over the next quarter century.”

Not only was the fund universe much smaller in 1979, it was also much more homogenous. Most regional equity categories were non-existent, Morningstar notes, as were most industry sector equity funds.

“Other categories — such as alternative strategies, income trusts, high-yield bonds and labour sponsored venture capital — weren’t even a gleam in a fund marketer’s eye,” Luukko says.

Morningstar recently upgraded its PalTrak performance measurement software and 20-year and 25-year returns are now available to all subscribers.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com