Equities did well again in 2024. A lot of the gains came from the Magnificent Seven technology companies — Apple Inc., Microsoft Corp., Alphabet Inc., Amazon.com Inc., Nvidia Corp., Meta Platforms Inc. and Tesla Inc. But top performing mutual fund families weren’t all heavily exposed to these stocks.
That includes Capital Group Canada whose funds had 95.2% of long-term mutual fund assets ranked in the first or second quartile for the year ended Dec. 31, 2024, according to Morningstar Direct.
Capital Group Global Equity Fund, with $12.5 billion of year-end net assets under management (AUM) in the first or second quartile, had only an average weighting for these stocks but was able to find other outperforming equities in a variety of sectors, explained equity investment specialist Kathrin Forrest.
Other strong performers included Fidelity Investment Canada (78.9%), CI Investments (77.7%), RBC Global Asset Management (77.1%), IG Wealth Management (75.1%) and TD Asset Management (74.4%).
By and large, fixed income didn’t have a great year as the expected drops in interest rates stalled in the fall. But Lysander Funds Ltd.’s Lysander Corporate Value Bond Fund, which had $17.4 billion in AUM, pushed the family to 95.3%, a tad higher than Capital’s 95.2%.
At the other end of the scale, Edgepoint, Manulife and Desjardins were all below 30%.
Here’s a look at some of the companies in detail:
Lysander Funds Ltd.
The company’s “focus on ensuring adequate compensation for risk assumed has recently led our fixed income funds to a more conservative posture — something we believe to be important in the year ahead,” president Richard Usher-Jones said.
Capital Group Canada
The company’s team of 200 internal global managers uses “collaborative research, diverse opinions and a long-term mindset,” Forrest said. All funds have multiple managers. They don’t focus on where companies are located but rather on where they get their revenue.
Some of the non-technology sectors where managers found opportunities in 2024 were biotechnology and pharma; aerospace and defence; companies finding solutions for the buildup of power grids; stocks benefiting from the post-pandemic recovery in travel; capital markets; alternative asset managers; and financial analytics, Forrest said.
Like most portfolio managers (PMs), Forrest is cautiously optimistic about equities this year. There will likely be episodes of volatility providing opportunities for investors. She warns however that “inflation is down, but not out” with more cuts likely from the Bank of Canada than the U.S. Federal Reserve Board.
Fidelity Investment Canada
Kelly Creelman, senior vice-president, products and marketing, called the year 2024 “one of the most exciting.” Artificial intelligence (AI) is a big part of the story. Not only were PMs overweight the Magnificent Seven, they also found other firms benefiting from the technology, either by providing infrastructure or integrating AI into their products and services. Examples include Vertiv Holdings, which provides infrastructure and services for data centres, carbon-free energy producer Constellation Energy and streamer Netflix Inc.
Fidelity PMs remain overweight U.S. stocks, but Kelly said they believe opportunities could be much broader and more diverse this year. There’s renewed optimism in Japan where there have been mergers and acquisitions, good opportunities in Europe and China is providing fiscal stimulus and regulatory intervention. Valuations are low in Asia, excluding Japan, and in Europe.
Asset allocation also played a role in 2024. Fidelity’s global asset allocation team was overweight the greenback, overweight high yield and leveraged loans and its flagship Fidelity Global Asset Allocation Fund had a small allocation to bitcoin, which more than doubled in value during the year.
IG Wealth Management
Good stock selection, particularly among international equities helped these funds, said Florence Narine, head of investment solutions. She noted the contributions from partners like JP Morgan Asset Management, ClearBridge Investments, BlackRock Inc. and Mackenzie Investments in international strategies.
Funds that did well included managed solutions and balanced funds. IG Wealth clients are increasingly adopting managed solutions strategies. These take a “more institutional risk-adjusted approach,” Narine said.
There are uncertainties in 2025. Even though the fight against inflation has been won, central banks need “to finish what they started.” It will require a balance of economic priorities between price stability, unemployment and growth to bring policy rates to neutral.
PIMCO Canada
The fixed income specialist came in at 53.6%, down from over 90% in the previous three years. Agency mortgage-backed securities that are guaranteed by the government accounted for 39% of AUM. PM Alfred Murata said the firm finds these “extremely compelling.” In addition, they have holdings of non-guaranteed mortgage-backed securities. Many of these have benefited from property appreciation so that many mortgages are now less than 50% of the current value.
PIMCO also started buying inflation-protected securities last year and will continue to do so as the firm expects inflation to average 2.75% in the next decade. Murata described these as “attractive but not compelling” because the current market consensus for inflation has moved up to 2.5% from 2% a year ago.
ATB Investment Management
ATB Investment Management only had 34.9% of AUM in above-average performing funds. President Ian Filderman said the funds were focused on their “diversified risk-aware approach to achieving long-term returns” and “weren’t really exposed” to the Magnificent Seven. But with equities generally doing so well, they still had satisfactory returns, even if relatively low relative to their peers.
Filderman is “generally fairly constructive” about this year. But “we are very aware of where the risks are and will make certain to manage them.” Among those uncertainties are a trade war, the weak Canadian dollar, the potential for continued growth in Canada and Europe and what will happen to interest rates.
Scotia Global Asset Management
Performance by these funds has been relatively weak during the past three years. Jim Morris, head, investment management at Scotia Global Asset Management, said a lot of their equity and balanced funds held higher quality and dividend-paying securities that underperformed. In addition, “a budding rally in the bond market, which began in the summer of 2024, fizzled out in the latter part of the year.”
Morris said that given the Donald Trump administration’s domestic policy focus, it’s possible 2025 will see smaller companies outperform.
Desjardins
Performance by Desjardins’ funds has been relatively weak during the past three years. One reason was that their many sustainable development funds haven’t done well since the Ukraine-Russia war increased oil and gas prices, explained Marc Michaud, manager in the investment solutions performance division. Sustainable funds aren’t rated against other sustainable funds but rather against peers in their category, many of which don’t hold similar investments.
Prospects for these funds aren’t good with Trump pulling out of the Paris Climate Accord and cancelling the previous administration’s climate initiatives. The firm is taking “a hard look” at its product offerings.
Desjardins’ low volatility income-oriented funds didn’t perform well either, as tends to happen in equity bull markets.
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This article appears in the February issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online. It has been updated to correct errors.