Want to invest like a mutual fund manager? Here are the most popular stocks

CIBC Capital Markets has identified the top Canadian stocks consistently overweighted by money managers

A new analysis from CIBC Capital Markets shows Brookfield is one of the most popular stocks among Canadian mutual fund managers.
A new analysis from CIBC Capital Markets shows Brookfield is one of the most popular stocks among Canadian mutual fund managers.

Retail investors can now invest like institutional money managers after a new CIBC Capital Markets analysis identified some of the most popular TSX stocks held in Canadian mutual funds.

The report examines Canadian-focused mutual funds and analyzes whether fund managers were overweight or underweight securities compared to the stocks' benchmark weighting. The report, which was released on Tuesday and led by CIBC's head of portfolio strategy, Ian de Verteuil, used data from Dec. 2019 to June 2022.

"For a portfolio manager to carry a position that differs in weight from the benchmark, there must be either incremental confidence in the management team or business model, or incremental perceived risk," the report said.

Brookfield Asset Management, Canadian Pacific Railway and Suncor Energy were the "most popular" S&P/TSX 60 stocks among fund managers as of last June, according to the report.

Top 10 most overweighted TSX 60 stocks

  1. Brookfield Asset Management (BAM.TO) (BAM)

  2. Canadian Pacific Railway (CP.TO) (CP)

  3. Suncor Energy (SU.TO) (SU)

  4. Alimentation Couche-Tard (ATD.TO)

  5. Telus (T.TO) (TU)

  6. Sun Life Financial (SLF.TO) (SLF)

  7. Intact Financial (IFC.TO)

  8. Fortis (FTS.TO) (FTS)

  9. Brookfield Infrastructure Partners (BIP-UN.TO) (BIP)

  10. Thomson Reuters (TRI.TO) (TRI)

One drawback to the analysis, however, is the difficulty for a fund manager to be meaningfully overweight some large-cap stocks, such as Royal Bank of Canada.

At a market cap of $186 billion, the largest in Canada, its already hefty weighting in the TSX 60 makes it hard for a money manager to be significantly overweight the stock in their fund, according to the report.

The smaller the market cap, the easier it is for a money manager to overweight the position.

The note gave "special mention" to the Brookfield family of companies.

"If Brookfield was on Facebook, it would have the most 'likes,'" the authors wrote, noting the popularity extends to Brookfield Asset Management, Brookfield Infrastructure Partners and Brookfield Renewable Partners.

Some other conclusions of the report include: CP Rail seems more popular compared to its rival CN Rail; Intact is well-liked among fund managers despite its higher valuation compared to peers; and Couche-Tard and Thomson Reuters have been long-time favourites.

The lesser-liked names

"We can start with the unsurprising names," the report says.

"Shopify is essentially ignored by Canadian mutual fund managers – and that has been a rewarding investment decision in 2022."

Over the course of 2022, Shopify shares fell roughly 70 per cent as the pandemic-fuelled e-commerce boom continued to fade as the economy reopened.

Top TSX 60 firms that were underweighted

  1. Enbridge (ENB.TO) (ENB)

  2. BCE (BCE.TO) (BCE)

  3. Canadian Imperial Bank of Commerce (CM.TO) (CM)

  4. Shopify (SHOP.TO) (SHOP)

  5. Waste Connections (WCN.TO) (WCN)

  6. Barrick Gold (ABX.TO) (GOLD)

  7. Franco-Nevada (FNV.TO) (FNV)

  8. National Bank of Canada (NA.TO)

  9. Pembina Pipeline (PPL.TO) (PBA)

  10. Wheaton Precious Metals (WPM.TO) (WPM)

It was notable to the report authors that BCE Inc. was chronically underweighted in institutional portfolios compared to Rogers and Telus.

“We are not surprised that a Canadian PM might want to limit exposure to the sector, but the disparity in holdings is meaningful. Clearly, Canadian mutual fund managers carry a cautious stance on BCE, possibly perceiving that growth in EBITDA and dividends will lag either of its closest peers, TELUS and Rogers,” they said.

Mutual fund industry still influential despite outflows

Canadian mutual funds saw billions of dollars in outflows last year, but overall, the industry still plays a significant role in financial markets.

The latest data from the Investment Funds Institute of Canada on Tuesday showed investors pulled net $8.7 billion from Canadian mutual funds in December alone.

For 2022, the industry suffered a net outflow of $44 billion amid market volatility, compared to a net inflow of $113.6 billion in 2021.

Total assets for Canadian mutual funds dipped to $1.8 trillion in December month-over-month. That’s still significantly higher than the Canadian ETF industry, which had total assets of $313.7 billion as of December.

Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.

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