Post by
retiredcf on Jan 24, 2023 10:01am
CIBC
EQUITY RESEARCH
January 23, 2023 Industry Update
Which Stocks Are Popular In Canadian
Mutual Fund Circles?
Brookfield, TELUS, Intact And Thomson Stand Out
Our Conclusion
Every share of every company is owned somewhere. However, it is
interesting to see which securities have strong overall support from
Canadian institutional investors. To do this, we analyse a time series with the
entire equity holdings of all Canadian mutual funds.
Several S&P/TSX 60 stocks seem to fit the bill as “popular” – defined as
being significantly overweight in mutual funds, vis--vis their weight in the
index. Notable mentions include Brookfield (the entire group), TELUS, Intact,
Thomson Reuters, Suncor, Couche-Tard, Sun Life and Fortis.
In our opinion, institutional support provides issuers with a “buffer” against
short-term operational issues. Managers of large Canadian mutual funds are
unlikely to lose confidence in a management team and business model, if
challenges appear to be manageable. On the other hand, it does make the
security vulnerable if a major change in business conditions occurs.
Key Points
We have been able to build a time series, from the bottom up, of all
securities held by Canadian mutual funds, to consider the institutional
support for various Canadian equities. Our data set goes back to December
2019 and our most recent data point is June 2022, and includes both
S&P/TSX 60 and S&P/TSX Composite members and proportionate
ownership.
Not surprisingly, larger companies have larger weights in mutual funds.
Indeed, PMs are always aware of their benchmark as straying too far
overweight or underweight will create significant tracking error. As such,
active decisions to “over or under” own a security provides great insight into
institutional perspectives on business prospects.
What is particularly interesting is the consistency of perspective by Canadian
mutual fund managers. Very few companies make large moves from
popular, i.e., overweight versus the index, to unpopular, i.e., underweight.
For perspective, Shopify has consistently been overlooked by Canadian
mutual fund managers while Brookfield and CP Rail have remained favorites.
This supports our belief that modest changes in business conditions do not
cause major adjustments in relative positioning.