| Fund Company | Fidelity Investments Canada |
| Fund Type | Global Equity |
| Rating | F |
| Style | Blend |
| Risk Level | Medium |
| Load Status | Optional |
| RRSP/RRIF Suitability | Poor |
| TFSA Suitability | Poor |
| Manager | Chandler Willett since October 2013 |
| MER | 2.43% |
| Code | FID 200 – Front End Units
FID 500 – DSC Units |
| Minimum Investment | $500 |
Analysis: The most interesting aspect of this fund is that it is managed using a sector neutral approach. Basically, the portfolio’s sector allocation must match that of the benchmark. It is like a hybrid between indexing and active management, with the sector mix determined by the market and the manager able to use their stock selection process to build out the portfolio.
The theory is this type of approach will allow the manager’s stock picking ability to shine through. Unfortunately, it has failed to do that, underperforming the MSCI World Index by a substantial margin, on both an absolute and risk adjusted basis. For the five years ending September 30, the fund gained 8.4%, while the index was up by 13.6%.
In my opinion, there are a couple of flaws with this type of approach. First, by forcing sector weights to match the benchmark, a very important tool is taken away from the manager. Without the ability to overweight or underweight sectors, it becomes increasingly difficult for them add value. Further, the end portfolio tends to perform somewhat similarly to its benchmark, as evidenced by its high correlation and R-squared to the MSCI World Index. Basically, the portfolio is substantially similar to the index.
If the portfolio is very benchmark like, it highlights the second flaw with this fund, being the relatively high cost. The MER for the front end version is 2.47%, which is slightly below the category average, but the DSC version is above the average, with an MER of 2.67%. If you have a portfolio that is much like the benchmark, the cost becomes a critical factor in its performance. Adding an additional 247 basis points of performance, while being saddled with the index weights is a near impossible task for most portfolio managers.
Fidelity offers this type of fund for both Canadian and U.S. equity. The results have been somewhat similar for the U.S. version, which has lagged the S&P 500 over time. The Canadian version has fared much better, producing shorter term results that have actually outperformed the S&P/TSX Composite.
Still, I would be reluctant to recommend this strategy for most investors. It is my opinion that most are better off going with a high quality actively managed fund, or a low cost passive index fund or ETF to gain a similar investment exposure. I believe that in both cases, investors will fare better than with this type of fund.