Morningstar’s manager research team covers more than 330 different equity, fixed-income, and allocation strategies in Canada and provides investors with independent insights on the country’s largest and most talked-about funds.
However, we also look for funds that deserve more attention—ones with impressive returns, differentiated approaches, or familiar investment teams. To that end, there’s Morningstar Canada’s Prospect List, a semiannual publication of our analysts’ most promising ideas. The most recent iteration saw two names—the Fidelity NorthStar Fund and Fidelity Canadian Large Cap Fund—graduate to full coverage, along with three new additions. Let’s look at the newcomers.
Beutel Goodman Small Cap
​Long-standing managers Stephen Arpin and William Otton run this strategy, which invests only in smaller-cap Canadian companies (those with a market float in the bottom 15% of the S&P/TSX Composite Index). ​​They follow a bottom-up research process to find growing businesses with strong balance sheets that trade at a substantial discount to their intrinsic values. ​
​The fund is more volatile than its peers, but it has delivered better absolute and risk-adjusted results than both them and the category index for well over a decade. Since smaller companies can be riskier, Arpin and Otton seek investments that offer a 100% return over a three- or four-year holding period (in contrast to 50% for the firm’s large-cap strategies). Once a position meets its price target, they sell a fourth of it and revise and evaluate its price target.
DFA Global Fixed Income
​Consisting of three separate DFA funds (including targeted credit), this cheap bond strategy follows the firm’s factor-based investing tenets. However, unlike the more popular equity counterparts, it moves dynamically based on assessed risk premiums. Duration can and will move quite a bit compared with other bond strategies.​
​This fund benefits from the best ideas from the firm’s fixed-income research, which has added value over the past five years. An increased weighting in short-term bonds helped in 2023 and 2024 as yields remained volatile. ​
​Its price is extremely attractive. At 31 basis points, it’s lower than even some passively managed global bond ETFs in Canada. DFA’s efficient trading desk also reduces hidden transaction costs.
Guardian Canadian Focused Equity
​This strategy serves best as a complement to core strategies. It’s one of the most active Canadian equity funds in its category, focusing on 20 of the manager’s best ideas in three buckets: defensive growth, quality growth, and cyclical growth.​
​Lead manager Sam Baldwin got his start covering Asian stocks, an unusual background for a Canadian equity manager, but he understands the Canadian market’s quirks. For example, in the strategy’s cyclical growth bucket, which includes the country’s more volatile energy and materials companies, he requires a higher expected return for holdings. His grasp of subtleties like the historical correlation between Canadian banks and energy companies shows a deep familiarity with the market.​ ​This strategy is not for the faint of heart; its highly active approach widens the range of potential outcomes.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.