Morningstar Canada says that Canadian investors have the lion’s share of their assets in funds that have been rated by Morningstar, and they overwhelmingly favour funds with five- and four-star ratings.

Individual Canadian investors have over $500 billion invested in investment funds, including mutual funds and segregated funds. Although 60% of Canadian funds are less than three years old and so aren’t rated by Morningstar, star-rated funds account for the lion’s share of invested assets, over $400 billion. Nearly 80% of all invested assets are in the 40% of funds that have star ratings.

The 152 five-star funds, which account for less than 4% of the number of funds publicly available, enjoy about 13% of all assets. Conversely, assets in one-star funds, of which there are a similar number, totalled less than 2.5% of all investments.

Mark Warywoda, senior analyst with Morningstar Canada, said, “Based on total asset distributions across mutual funds in Canada, investors have shown their preference for the same characteristics that Morningstar values: funds with superior relative risk-adjusted performance over a sustained period.”

Morningstar’s Star Ratings are a pure-quantitative measure of a fund’s historical risk-adjusted performance relative to other funds in its category. Only funds with at least a three-year track record are considered.

Among the 14 funds that were elevated to five-star status in July, six made the jump from a four-star rating in June, whereas eight were newly rated, including four from London Life Insurance Co.

C.I. Mutual Funds Inc., with eight, has the most five-star funds of any Canadian fund manager, followed by Mackenzie Financial Corp. with seven.