Foreign Fund Facts

In last month’s blog Fun Fund Facts I looked at the performance rankings of Canadian equity funds. The facts showed that over longer time periods there was more of a tendency for bottom funds to remain in the bottom quartile than for top funds to remain in the top quartile, and that using deciles to screen is better than using quartiles. I have expanded the fund facts to those that invest in foreign stocks. Let’s see how the top and bottom decile Canadian equity fund results compare with the results for the top and bottom decile global equity funds.[1]

Foreign Fund Facts

Once again, I used the RBC Investor & Treasury Services’ Pooled Fund Survey[2] (Survey) to obtain the return rankings of global equity funds offered by Canadian and non-Canadian managers. To recap their methodology, RBC calculates a percentile ranking from 1 to 100 based on each fund’s return relative to the other funds in the survey. The best funds are those in the top 10% (decile 1) or top 25% (quartile 1) of their peer group returns. The worst funds have returns in the bottom 10% (decile 10) or bottom 25% (quartile 4) of funds.

There was a smaller number of global equity funds compared to Canadian equity funds in the Survey. Over the years 2006 to 2022 the number ranged from 70 to 106. I eliminated the small number of funds that were not actively managed or were restricted to small capitalization stocks. I also used the same methodology and time periods for looking at calendar year-end rankings year by year as well as trailing 4 year return rankings. The same biases to the Survey I noted in the previous blog apply here as well.

Fund Facts Comparison – Calendar Years

Chart 1 shows the results for Canadian equity funds from the previous blog when looking at calendar year rankings by decile over the years 2009-2022. The top 10% of funds (decile 1) remained in quartile 1 the next year 42% of the time. The bottom funds (decile 10) remained bottom dwellers 33% of the time.

Chart 1

Chart 2 uses the same methodology for global equity funds. As with Canadian equity funds, top decile global equity funds were more likely to remain in the top quartile. For 37% of the time, they remained in quartile 1 and in the top two quartiles 57% of the time. The results for bottom decile funds were less strong, as they remained bottom quartile only 25% of the time (although still in the bottom two quartiles 59% of the time).

Chart 2

Fund Facts Comparison – Trailing 4 Years

Chart 3 shows the previous blog’s results for Canadian equity funds when looking at trailing 4 year rankings by decile over the years 2006-2022. For each year-end I compared a fund’s trailing 4 year return ranking to their trailing 4 year ranking four years later. The top 10% of funds (decile 1) remained in quartile 1 four years later 33% of the time. The bottom funds (decile 10) remained quartile 4 bottom dwellers 37% of the time.

Chart 3

Now let’s look at global equity funds in Chart 4. Top decile global equity funds were much more likely to remain in the top quartile four years later (52% of the time). They stayed in the top two quartiles 71% of the time. Similar to the calendar year comparison, the results for bottom decile funds were less strong. They remained bottom quartile only 24% of the time (although still in the bottom two quartiles 61% of the time).

Chart 4

Foreign Fund Facts Implications

In Fun Fund Facts the longer term results (trailing 4 years) were that top decile Canadian equity funds were less likely to stay top quartile than bottom decile funds were to remain bottom quartile (Chart 3). The facts for global equity funds were the opposite. Top decile global equity funds stayed top quartile four years later 52% of the time, and in the top half of funds 71% of the time, a pretty strong result. Based on all the facts, using deciles is better than using quartiles to screen funds, and it works best for looking at top decile global funds. But remember, data alone isn’t sufficient for selecting a fund and should only be one part of an evaluation.

Invest Wisely,

Dave Schaffner, CFA

Principal, Wayfairer  Capital Management Ltd.

[1] Similar to the Canadian equity funds, the likelihood of top and bottom decile global equity funds remaining in the top or bottom quartile was greater than the likelihood of top or bottom quartile funds remaining in those quartiles.

[2] Each quarter RBC Investor & Treasury Services’ Pooled Fund Survey compiles the pre-fee returns of over 90 asset managers (primarily Canadian) covering 700 high quality funds that are available to Canadian institutional (and in some cases retail) investors.