Where an investor puts their hard-earned money depends very much on an individual’s risk appetite. More risk averse investors chose to invest in bonds, GICs and fixed income assets, while investors with a higher risk appetite choose to invest in stocks. Within stocks, those with a lower risk appetite choose to invest in large cap funds and stocks, while those with slightly higher risk appetites consider small and mid-cap options.
Last month, we discussed five global funds that had the potential to outperform. Funds in the global category must invest more than 10% and less than 90% of their portfolios in Canada or the US, and the rest in any other country.
This week we are looking at small and mid-cap options in the global equity space. There are a total of 462 funds in the global small and mid-cap fund category, of which 100 are medalist funds, or funds that have a rating of Gold, Silver or Bronze. The forward-looking rating picks funds that are likely to outperform in the future, based on various metrics including price, portfolio and performance.
Of these medalist funds, we look at five that have four or five star ratings. The star rating is a data-driven rating that measures how well a fund has performed in the past, compared with similar funds.
Here is a list of five funds that have performed well in the past, and have a potential to perform well in the future as well:
| Name | Morningstar Rating | Quantitative Rating |
10-Year Total Return |
|
 |
||||
| Counsel Global Small Cap Sr F | 4 | Gold | 11.75 | |
|
||||
| Manulife Global Small Cap F | 5 | Gold | 18.46 | |
|
||||
| Fidelity NorthStar Sr F | 4 | Gold | 11.31 | |
|
||||
| RBC O'Shaughnessy Global Equity Fund F | 4 | Bronze | 9.7 | |
|
||||
| Invesco Global Small Companies Cl Ser D | 4 | Bronze | ||
|
||||
|
||||
| Source: Morningstar. Data as of Oct. 31, 2018 | ||||
Counsel Global Small Cap Sr F
Counsel Global Small Cap fund is a four-star, Gold-rated fund. It invests 54% of its portfolio in international equity, 15% in U.S. equity and another 23.67% in Canadian equity. It is slightly overweight on developed Europe, the U.K., Japan and emerging Asia, as compared with its category, and is slightly underweight on North America and developed Asia. It also holds close to 3% of its portfolio in cash. The fund is overweight on technology and industrials, and is underweight on consumer cyclicals and financial services. Over the past 10 years, it has returned close to 12%, annualized.
Manulife Global Small Cap F
Manulife Global Small Cap is the only five star Gold-rated fund on this list. Managed by Paul Moroz since 2008, the fund has returned over 18% annualized over 10-years, as against a category average of a little over 10% returns. The fund also has a lower than average standard deviation. The fund is heavily overweight on industrials and technology and is heavily underweight its category on consumer cyclicals. The funds invests over 83% of its portfolio in international equity. It is significantly underweight on North America, a compared with its category, with only 10% of its portfolio in the region, as against a category average of 45%. Instead, it is significantly overweight on the U.K. and developed Europe: 24% of its portfolio is in U.K. equity, as against a category average of 10%, while it invests over 35% in developed Europe, as against a category average of 14%. Its top five holdings account for a little under 20% of the overall portfolio.
Fidelity NorthStar Sr F
Fidelity NorthStar is a four-star, Gold-rated fund. The fund has a little over 6% of its $6.8 billion of assets in cash, close to 27% in U.S. equity and a little over 51% in international equity. It is overweight on developed Asia, with over 16% of its portfolio invested in the region, as against a little under 8% for the category. It is also overweight on Africa and the middle East. The fund is low-risk as compared with its category, and has delivered higher returns than average. The fund is overweight on healthcare consumer defensive and consumer cyclical, and is underweight on technology and industrials.
RBC O'Shaughnessy Global Equity Fund F
RBC O'Shaughnessy Global Equity is a four-star, Bronze-rated fund that has 47% of its portfolio each in U.S. equity and international equity. The fund is overweight on North America, emerging Europe and Australasia, and is underweight on the U.K., Japan and developed Asia. The fund has a slightly higher than average standard deviation, and has lower than average returns over 10-years. The fund is overweight on financial services and technology, and is underweight on consumer cyclicals, industrials and healthcare. It is also the cheapest fund on this list, with expenses of 1.09%.
Invesco Global Small Companies Cl Ser D
Invesco Global Small Companies is a four-star, Bronze-rated fund. The fund is heavily overweight its category on industrials and communication services and is also overweight on technology and consumer cyclicals. It is underweight on financial services. In terms of geographical spread, the fund invests a little under 45% of its portfolio in U.S. equity, and a similar amount in international equity. It holds almost 11% in cash. It is overweight on the U.K. and emerging Europe and developed Europe and is underweight on developed Asia. Interestingly, it has no holdings in Japan, as against a category average Japan allocation of over 13%. The fund has above average returns and an average amount of risk, relative to its category.
