10 Most Popular Stocks, Funds, and ETFs of 2021

Earlier this month, Google released its Year in Search report. The most popular Google search in Canada in 2021 was ‘NBA’, followed by ‘NHL’, ‘COVD Vaccine Near Me’, ‘Euro 2021’ and ‘AMC Stock’. The most popular search term of 2020 – ‘U.S. Election’ was nowhere to be seen, understandably.

For those paying attention to investing in particular, Reddit’s Year in Review 2021 has some interesting insights. The top 3 most upvoted posts in 2021 were from r/wallstreetbets: Times Square right now, UPVOTE so everyone sees we got SUPPORT, and GME YOLO update — Jan 28 2021. The most viewed topic in 2021 was… cryptocurrency.

So what about Morningstar.ca? This year, just like we did last year, we decided to show you the most popular content on Morningstar.ca. Before we get into the actual securities, though, let’s look at how popularity itself impacts stock prices. My colleagues Paul Kaplan, Thomas Idzorek and James Xiong, along with Yale’s Roger Ibbotson wrote a book called Popularity: A Bridge Between Classical and Behavioral Finance, in which they say, “We believe that most of the best-known market premiums and anomalies can be explained by an intuitive and naturally occurring (social or behavioural) phenomenon observed in countless settings: popularity.”

Simply put, investors are willing to pay more for securities with popular characteristics and less for securities with unpopular characteristics. This causes popular stocks to have lower returns and unpopular stocks higher returns. Thus, investors who are willing to hold unpopular stocks will, over the long run, earn higher returns than other investors.

Does that mean that the most popular stocks on Mornigstar.ca are overvalued? Let’s find out.

10 Most Popular Stocks
Not surprisingly, banks, telecom and energy dominated the list of most-often-viewed stock reports. Interestingly, most of the 10 most popular stocks among our viewers are the same as 2020, with three additions – Canadian National Railway (which is back from 2019), Algonquin Power, and Telus. The three stocks that gave up their space on the list to make way for these are Suncor Energy Inc, Air Canada Class B and Canadian Imperial Bank of Commerce

Morningstar equity analysts cover nine of the 10 companies and award them either narrow or wide economic moats, which means these companies have competitive advantages over their peers. The one company that is not covered is Algonquin Power and Utilities. Several on this list also pay out healthy dividends, a hot favourite among our readers:

Source: Morningstar Direct Data as of December 09, 2021

So that’s what’s been happening with stocks, but what about funds? 

“Both mutual fund and ETF estimated net flows showed strength in 2021 compared to the prior year, understandably, given the panicked COVID-19 market selloff. Notably, ETFs classified as ‘alternatives’ (namely those that invest in cryptocurrencies and leverage commodities) showed particular strength between February to May this year, with interest tapering off thereafter. Additionally, we note that sustainable funds continue to garner interest from the market with net inflows every month in the first three quarters of the year,” said Morningstar Canada’s director of investment research Ian Tam.

10 Most Popular ETFs
Interest in passive products continued to rise among our readers. The popular ETFs are dominated by Vanguard and iShares. This year, the ARK Innovation ETF was (unsurprisingly) a new entrant on the list. The ETF dominated headlines for much of last year, returning over 152% in 2020 (this year, though, it’s lost more than 24% year to date as of Dec 13). This underperformance would have been unsurprising to our readers, who knew back in March that our analyst Robby Greengold believed, “Cathie Wood’s reliance on her instincts to construct the portfolio is a liability. This is a high-risk, benchmark-agnostic portfolio that invests across technology platforms the team thinks will revolutionize how sectors across the globe operate." Greengold also points out the volatility and concentration of sectors in the portfolio. "Rather than gauge the portfolio’s aggregate risk exposures and simulate their effects during a variety of market conditions, the firm uses its past as a guide to the future and views risk almost exclusively through the lens of its bottom-up research. The fund lacks well-defined risk controls, which are now more important than ever…ARK’s untested analysts, go-with-your-gut risk management approach, and bloated asset base raise doubts about whether this fund’s outstanding historical results can continue.” He awarded it a rating of “Neutral”.

All the ETFs on this list have either a Morningstar Analyst Rating or a Morningstar Quantitative Rating. The two ETFs that earn a “Neutral” rating – ARK, and Vanguard FTSE Canada All Cap ETF – are among the more expensive ones on the list. Here’s the list of the 10 most popular ETFs on Morningstar Canada.

Source: Morningstar Direct Data as of December 09, 2021

10 Most Popular Mutual Funds
Now, let’s take a look at our most popular mutual funds. Again, unsurprising, technology funds, balanced funds, and dividend funds topped the list of most popular funds. Most of the funds on the list have a Morningstar Quantitative Medalist Rating, but only one of them gets the coveted Gold-medal – the Mawer Balanced A. Here’s the list:

Source: Morningstar Direct Data as of December 09, 2021

Our quantitative analysis of the Gold-rated Mawer fund states, “A strong management team and sound investment process underpin Mawer Balanced A's Morningstar Quantitative Rating of Gold. The share class maintains a cost advantage over competitors, priced within the second-cheapest fee quintile among peers. The strategy has been able to retain portfolio managers, which builds stability and continuity and results in a High People Pillar rating. The fund's investment approach stands out and earns a High Process Pillar rating. The portfolio has overweighted the Europe-Developed region and has underweighted the energy sector compared with category peers. The strategy is part of a first-rate parent, as shown by the firm's successful risk-adjusted track record, which supports its High Parent Pillar rating.” 

Finally, keep an eye on the fees, or MERs of the funds. Tam says having access to investment funds with low fees is vitally important to the long-term success of the Canadian investor. “In essence, the fees paid take away from what the investor gets in her pocket which can be substantial when compounded over the investment time horizon. It would serve investors well to pay close attention to not only management fees (paid to the portfolio manager) but also any trailer fees or other one-time commissions (paid to advisors), especially if the investor doesn't feel like she's getting good value for the advice that is received. Advice is valuable, but only if you receive it,” Tam warns.

“When we compare 2020 and 2021, we see that income, balanced and thematic funds continue to remain important for Canadian investors. On the thematic side, the funds that are focused on growth-oriented themes seem to be popular. Two factors to consider here are that 1. These funds have benefitted from the style’s outperformance in developed markets ex-Canada, and 2. Thematic funds have bumped up in the ranks despite their higher fees. At Morningstar, we believe that fund fees are the single consistent contributing factor to a fund’s long term under or overperformance,” points out Danielle LeClair, director of Manager Research for Morningstar Canada.