What are we looking for?
The most resilient equity funds, measured over the course of two global market sell-offs.
The screen
There is certainly no shortage of doom and gloom headlines regarding the softening of the global economy as central banks try to stifle the effects of inflation around the world. Though there are signs that interest rate cuts are on the horizon, it all makes for a very tough investing environment, particularly for those who fear a recession. Sitting on the sidelines, however, doesn’t serve investors well either. To this end, I thought to have a look in the equity fund space for those that have fared the best during times of heavy downward volatility: the global financial crisis and the pandemic selloff. During these times (when the word “unprecedented” was arguably overused), most asset classes fell quite heavily, leaving investors with nothing but worries. However, as we now know, markets eventually recovered.
That said, some fund managers fared better than others. To find these funds, I scoured the Morningstar Direct database, first for equity funds that have been around since 2007, isolating only Class F shares (those that are offered in fee-based accounts where the cost of advice is charged separately from the MER). I then used a measure called maximum drawdown to find the value lost from peak to trough during both the financial crisis and the pandemic selloff. Further to this, I ranked the universe by placing an equal weighting on both drawdown measures.
What we found
Based on this ranking, the top 20 funds based on the weighted drawdown ranking are listed in the table, alongside MERs, trailing returns, inception dates and, importantly, the fund category to which each fund belongs, which provides an indication of geographic exposure. Though not used in the screening criteria, I’ve listed both the Morningstar Rating for funds (a.k.a. star rating), which is an objective, backward-looking measure of a fund’s after-fee returns relative to others in the category, as well as Morningstar’s Medalist rating, our forward-looking assessment of funds’ ability to product after-fee alpha in the future. I also note importantly that sector funds (those that invest only in health care or energy, for example) were excluded in the context of this search.
This article does not constitute financial advice. It is always recommended to conduct one’s own independent research before buying or selling any of the funds or ETFs mentioned in this article.
Ian Tam, CFA, is director of investment research for Morningstar Canada
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Ian Tam, CFA