Morningstar Magazine - October/November 2017 - 28

Dispatches

Steers CNS, with Eaton Vance EV offering
preliminary AUM data each calendar quarter.
How long this will last is anybody's guess, but we
believe that in both companies' cases the decision
to start releasing monthly figures was a reaction
to market misperceptions about their AUM levels
and flows, primarily related to the disruption
caused by the Department of Labor's fiduciary rule.
While we would like to see BlackRock BLK and
Affiliated Managers Group AMG provide monthly
data as well, given that they do a lot of business
with institutional clients, we've never gotten the
sense that either company would be willing
to go that route. Federated Investors FII and Janus
Henderson Group JHG are the only other
holdouts when it comes to monthly AUM data,
but because they are far more retail driven, we've
generally been able to back into their results.
As for the data itself, rising equity markets
continue to benefit most of the U.S.-based asset
managers, with AUM levels up around 9% on a
weighted average basis since the start of the year
at the end of July. While this should be viewed as
a positive, it does highlight the poor organic
growth environment, with the S&P 500 Index up
about the same amount year to date. The real
winners have been BlackRock, T. Rowe Price, AMG,
and Eaton Vance, all of which have seen
double-digit AUM gains since the start of the year.
With fees and margins for active managers
expected to be under pressure as low-cost passive
investing continues to gain traction, we
recommend the stocks of BlackRock, the leading
provider of exchange-traded funds, and T. Rowe
Price, which has the best, most consistent active
investment performance, for long-term investors.
BlackRock is at its core a passive investor. Through
its iShares ETF platform and institutional
index fund offerings, the wide-moat firm sources
close to two thirds of its managed assets from
passive products. In an environment where
investors are expected to seek out providers of
passive products, as well as active asset managers
that have greater scale, established brands,
solid long-term performance, and reasonable fees,
we like how BlackRock is positioned. The biggest

28

Morningstar October/November 2017

differentiators for the company are its scale, ability
to offer both passive and active products,
greater focus on institutional investors, strong
brands, and reasonable fees.
As for T. Rowe Price, the company has never tried
to be, and has never needed to be, anything
other than an active manager. In an environment
where active management is under assault
for poor investment performance and high fees,
the wide-moat firm is the best positioned among
the traditional active asset managers we
cover. The biggest differentiators for T. Rowe Price
are its scale, the stickiness of its asset base, strong
brand identity, consistently solid long-term
investment performance, and reasonable fees.
Greggory Warren, CFA, is a sector strategist with
Morningstar Research Services.

Energy Picks Weigh
Down Two Medalists
AMERICAS

Canada

After a strong recovery in 2016, the price of oil has
been range-bound for the year through August,
with the benchmark West Texas Intermediate
crude stuck between $45 and $55 a barrel. As oil is
priced in U.S. dollars, a strengthening loonie
versus the greenback in recent months has also
been a headwind for many Canadian energy
producers, and most firms need higher prices from
current levels to be profitable.
It shouldn't come as a surprise then that the
energy sector in Canada has been the
worst performer year to date, down more than 11%
at last tally. Also, with energy representing
almost a 20% stake in the S&P/TSX Composite, it's
no wonder the Canadian equity market is
barely in the black for the year, despite solid gains
from other sectors.
The same can't be said of a couple of Canadian
Equity medalists, though, as they've

experienced energy-related woes that have
put them in the red.
In particular, Silver-rated PH&N Vintage
has stumbled to fourth-quartile performance
year-to-date. While the fund is slightly
underweight energy, its stock picks in the sector
such as Crescent Point Energy CPG and
Cenovus Energy CVE have underperformed
significantly, with both declining over
50%. The fund has fared better in the consumer
discretionary and materials sectors, both
this year and over the longer term. That's helped
the fund to a top-decile ranking over the past
five years.
Bronze-rated Leith Wheeler Canadian Equity has
also suffered from its energy holdings so far
this year. Here, overweight positions in Tourmaline
Oil TOU:CA and Seven Generations Energy VII:CA
detracted the most amount of value. The fund's
performance has been streaky over the past
few years because of its energy holdings, finishing
at the bottom of the peer group in 2015
before shooting to the top in 2016. It's in the
third quartile so far this year. It's important to note
that the team at Leith Wheeler has one of
the longest fund tenures of any in Canada, and
its long-term, low-turnover approach has
allowed the team to succeed despite these shorterterm setbacks.
Jeffrey Bunce is a senior investment analyst with
Morningstar Investment Management in Canada.

Investors Spend
Billions on Alternative
Income Trusts
GREATER EUROPE

United Kingdom
In a world of prolonged and abnormally ultra-low
interest rates, investors seeking income have
been pushed away from historical areas of comfort
such as government bonds and cash deposits.



Table of Contents for the Digital Edition of Morningstar Magazine - October/November 2017

Contents
Morningstar Magazine - October/November 2017 - Cover1
Morningstar Magazine - October/November 2017 - Cover2
Morningstar Magazine - October/November 2017 - 1
Morningstar Magazine - October/November 2017 - 2
Morningstar Magazine - October/November 2017 - Contents
Morningstar Magazine - October/November 2017 - 4
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