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MUTUAL FUND SCREENING STEPS

To see the funds eliminated at each step click here.

 

Step 1

We exclude mutual funds in the following categories, as we look at pure equity (actively managed) funds that are not sectoral, that is not emphasizing a particular industry of the Canadian economy, for diversification purposes and avoiding speculation on which sector will do better at a particular point in the business cycle. We aim to include funds in the database that buy and hold good businesses, not to time the business cycle.

 

ALTERNATIVE
CANADIAN FIXED INCOME BALANCED
CANADIAN FIXED INCOME
CANADIAN FIXED PAY
CANADIAN SHORT TERM FIXED INCOME
CANADIAN INCOME TRUST EQUITY
CANADIAN MONEY MARKET
FINANCIAL SERVICES EQUITY
GLOBAL FIXED INCOME
GLOBAL FIXED INCOME BALANCED
HEALTH CARE EQUITY
HIGH YIELD FIXED INCOME
NATURAL RESOURCES EQUITY
REAL ESTATE EQUITY

 2010 TARGET DATE PORTFOLIO
2015 TARGET DATE PORTFOLIO
2020 TARGET DATE PORTFOLIO
2020+ TARGET DATE PORTFOLIO
CANADIAN INFLATION PROTECTED FIXED INCOME
CANADIAN LONG TERM FIXED INCOME
INDEX
MISCELLANEOUS
PRECIOUS METALS EQUITY
RETAIL VENTURE CAPITAL
SCIENCE & TECHNOLOGY EQUITY
TACTICAL BALANCED
US MONEY MARKET

 

Step 2

We impose the following constraints to the remaining mutual funds; these constraints are linked to the normal value investing screening process.

STEP 2: P/E <=13
STEP 3: P/BV <=1.5
STEP 4: Div. yield >=1%
STEP 5: Turnover <=30%
STEP 6: # of stock holdings <=80 stocks.

 

Step 3

We further constrain the mutual funds based on the particular weight of the fund to four sectors that value investors would normally not invest in either due to lack of expertise or as to make money one would need to be a good market timer, and so we require the mutual funds to have certain weight on these sectors, as indicated below.

Morningstar sector weightings:

Software <=5%
Hardware <=5%
Industrial materials <=10%
Energy <=20%.
or have no more than 30% of their stocks in these sectors.

 

Step 4

As a final test, we should require the mutual funds not to be too highly correlated with the market portfolio; that is the fund not to be a closet index fund. As we only have access to annual data over a five or maximum ten year period, this restriction would not be appropriate as it may bias the funds included in our database and so we have decided not to activate this screen at this point.

R-Squared <=95%