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At the end of October, we published a report on the challenges facing active managers in beating the Canadian stock market. We also highlighted two funds representing Morningstar Manager Research’s best ideas in the space. The following fund is the only one still available to new investors.
The EdgePoint Canadian Portfolio has consistently rewarded patience, though investors should expect its bumpy ride to continue. This is far from an ordinary Canadian equity fund, and its highly active style will lead to large and sometimes negative dislocations from both peers and the Morningstar Canada Index.
All EdgePoint’s strategies follow one core approach: finding misperceived or out-of-favor securities by the market with little to no benchmark awareness. This creates a highly differentiated and concentrated portfolio. The EdgePoint Canadian Portfolio is no different. This approach requires the managers to practice patience to see through turbulent periods and can result in a portfolio and performance profile far different from the index. A five-year targeted holding period is more of a guideline than a rule here, and many of the top positions have been held for more than ten years.
Three key individuals—Tye Bousada, Geoff MacDonald, and Andrew Pastor—oversee this portfolio. Bousada and MacDonald have been a part of this strategy since its November 2008 inception. They both carry distinguished resumes from Trimark, where they managed Canadian and global equity strategies. Pastor has overseen the Canadian equities group for over ten years and spent the bulk of his career at EdgePoint. The remaining four have smaller impacts on this strategy, though Frank Mullen’s fixed income group can contribute ideas at times. The firm’s deepest knowledge base arguably resides in Canadian equities; every equity analyst first learns the investment process through a Canadian coverage list.
The strategy has been one of the best-performing Canadian equity strategies since it started on November 17th, 2008. Since then, through October 2024, the F share class returned 13.9% annualized. That ranks near the top of all funds in its category and handily beat its category benchmark, the Morningstar Canada Index, by over 3.9 percentage points annualized. It has done well in recent years as well, and it ranked in the top decile of the category in 2021, 2022, 2023, and the year to date through October 2024.
Still, this highly active approach is not flawless. In just the first three months of 2020, Canadian Portfolio F underperformed its category benchmark by over 11.5 percentage points, and it finished the year in the bottom quartile of funds. Investors who held on after those short-term pitfalls were greatly rewarded. From April 2020 to October 2024, the fund outperformed the category benchmark by nearly 10 percentage points annualized. Investors should expect these fluctuations to continue moving forward.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.