What are your top three considerations when choosing a fund?

This article appears in the March 2021 issue of Advisor’s Edge magazine. Subscribe to the print edition, read the digital edition or read the articles online.

Prem Malik, advisor, Queensbury Securities, Toronto

First is strong, consistent performance in the category. The performance should be due to a proven and consistent buy-and-sell discipline and to active management — not to a closet index manager.

Next, I look for a trustworthy company with a solid reputation. It’s important to make sure there is proven credibility to the company and it has a solid team of analysts supporting the fund manager and their team.

Lastly, fees. I want to make sure the manager is earning the fee he or she is charging. I’ll be honest: I don’t look for the cheapest fund provider. Based on my No. 1 criteria of strong performance, a reasonable comparative fee works for me. However, if the fee is excessive, I will most likely find a replacement fund.

Leanne Kohtala, portfolio manager, senior financial advisor, Your Plan by Kohtala Financial, Timmins, Ont.

It’s critical to me that funds remain true to their stated investment style. This way, my portfolio of funds is properly diversified between geography, size of underlying securities (small cap vs. large cap) and investment style. The mutual funds must play well together, so to speak. I am extremely critical of any portfolio manager and/or fund company that shifts their investment style methodology simply to conform to the current “hot” trend.

I respect lower portfolio turnover because I feel it shows that the portfolio manager is committed to the quality and prospects of the securities they have purchased on behalf of my clients. Exceptionally high turnover says to me, in part, that the portfolio manager is not particularly smitten by the prospects of their holdings.

Lastly, I appreciate a fund that is large enough that it has depth, but not so large that it becomes cumbersome. Smaller funds run the risk of fund mergers, which can derail my portfolio construction. Huge cash flows into a fund give me pause and may be a contrarian signal. I gain insight by asking our mutual fund partner representatives which of their core funds are seeing the most net cash flow or net redemptions. I tend to direct client cash flow into and out of mutual funds in the opposite direction of the overall cash flow of the fund. Investing against the herd has been a wise choice over the years.

John Webster, president, Queensbury Securities, Toronto

First, I need transparency. I want to see a relatively current and complete list of holdings with geographic and sector breakdowns. I don’t believe in putting blind faith in any manager.

The second screen is to find a fund that offers precisely what I’m looking for. This may be broad (global equities) or very specific (large-cap Canadian dividend-paying equities with an underweight in financials and no exposure to the energy sector). The more specific the criteria, the better.

The final screen is a comparison of the holdings to the fund’s mandate and to what the manager says the investment criteria are. Any discrepancy is a big red flag. If the fund is supposed to be Canadian equity, it should only hold Canadian equities. If the manager says they look for value stocks, there should not be any growth stocks in the portfolio. Unless the mandate calls for tactical asset allocation, cash should be minimal. We need to know that the manager has the discipline to follow their mandate and their stated processes. Deviations rarely provide good results.