Summary
This page answers one question with the data from the October 25, 2026 fund family report: if a corporation wants to be 100% in equities, which two or three funds best fit each of three goals? The goals are to beat the market, to match the market at the lowest tax cost, and to stay fully invested while falling as little as possible in bad years.
The answer, in short. To beat the market: Fidelity Special Situations Class, Fidelity Global Innovators Class and CIBC Nasdaq Index. To match it: TD's Canadian, U.S. and International index funds. To fall the least: TD North American Dividend, Fidelity Dividend Class and Fidelity Canadian Large Cap Class. Each mix is illustrative, built from past data, and not a recommendation for any particular investor.
The most important result is a warning for the first profile. Of the 207 diversified funds with a ten-year record, only 20 beat their category benchmark over ten years after fees, and only 7 did so over both five and ten years. Beating the market is possible, but the evidence that any fund will keep doing it is thin.
Two further sections compare the mixes with a simple pair of index ETFs and show what fund choice does to the small business deduction. Since January 2021, two low-cost ETFs kept more after tax than the second and third mixes, with or without an advisory fee, and less than the first. On a $10 million corporate portfolio, high-distribution funds cost about $237,000 a year more in corporate tax than tax-efficient ones once the lost small business rate is counted.
All returns run to October 23, 2026, and include this year to date, over three windows: since January 2021, since January 2018 and since January 2016. This version replaces the first one, which stopped at December 2025, and corrects a data error: 53 funds of the original data set had been read from a duplicate Morningstar record in U.S. dollars. Fidelity Canadian Large Cap Class is the fund on this page most affected. A companion persistence report tests whether past leaders kept leading and revises some of the picks below.
Key Findings
How the Funds Were Chosen
The starting point is the 319 funds of the main report. Sector funds (precious metals, natural resources, financials, infrastructure) were removed, as were private-wealth series and funds with fewer than nine calendar years of history. That leaves 258 diversified equity funds. Each was scored on the measure that matches the goal, and every fund was also run through the same corporate tax test as the main report: distributions from 2021 to October 2026 taxed at 2026 Québec corporate rates, with no refunds credited.
Funds with "Class" in their name are corporate class versions; the others are trusts. Each mix holds equal amounts of each fund, rebalanced once a year. Where a fund exists as both a trust and a corporate class, the class version was used unless the trust kept clearly more after tax. Funds from the same manager were limited where an alternative of similar quality existed, and the profile notes say where that was not possible. Tax drag per year is the average of 2021 to 2025, the last complete years.
Profile 1: Beat the Market
This investor accepts large swings in exchange for a chance at returns above the broad market. The screen asked for positive alpha against the fund's category benchmark over five and ten years, at least six of ten calendar years in the top half of the category, and a yearly tax drag of one point or less. Only two funds passed all four tests, so the profile was completed with the strongest funds that passed most of them.
| Fund | After tax, since Jan 2021 | After tax, since Jan 2016 | Tax drag per year | Worst calendar year | Alpha vs benchmark, 10y (5y) | MER |
|---|---|---|---|---|---|---|
| Fidelity Special Situations Class, Series B | 15.07% | 16.94% | 0.74% | -15.51% (2022) | +2.13 (+0.59) | 2.21% |
| Fidelity Global Innovators Class, Series B | 18.92% | n/a (since 2018: 24.50%) | 0.36% | -30.44% (2022) | n/a (+4.12) | 2.23% |
| CIBC Nasdaq Index | 16.12% | 18.11% | 0.00% | -28.55% (2022) | +2.29 (-0.41) | 1.25% |
Special Situations is the clearest case in the whole sample: positive alpha over five and ten years, seven of ten years in the top half, and a class version that kept 0.8 points a year more after tax than its trust twin since 2021 (1.1 points since 2016). Global Innovators has the second-highest five-year alpha in the sample (+4.12) but only eight years of history and the deepest loss in 2022 of the three. The Nasdaq index fund made no taxable distribution in five years, which makes it one of the most tax-efficient growth holdings available here; it beat the broad market by owning large U.S. technology companies, not by picking stocks.
After tax, the mix kept 20.69% a year since January 2018 and 17.13% since January 2021. That is about one point a year more than the Nasdaq index fund alone (19.48% and 16.12%) and well ahead of a simple Canadian and U.S. index pair (12.97% and 15.02%), with a smaller worst year than the Nasdaq fund (-24.8% against -28.6%). Its lead came from 2019, 2020 and 2023 onward, including 30% so far in 2026. Two of the three funds are from one manager, and Global Innovators and the Nasdaq index both lean heavily on U.S. technology. Special Situations has also been closed to new investors since July 2, 2021; only existing holders can add to it, and the persistence report suggests a replacement. For an actively managed U.S. holding instead of the index, AGF American Growth Class is the next candidate (after tax 13.50% since 2021 and 13.44% since 2016, worst year -9.68%), though its alpha is barely positive over ten years and negative over five; with it, the mix kept 19.17% a year since 2018.
Profile 2: Match the Market, Tax-Efficiently
This investor wants the market's return, no attempt to beat it, and as little tax and fee leakage as possible. The screen kept broad Canadian, U.S. and global index funds and other funds that track their index closely (R-squared of 95 or more) and compared what each kept after fees and tax.
| Fund | After tax, since Jan 2021 | After tax, since Jan 2016 | Tax drag per year | Worst calendar year | Alpha vs benchmark, 10y (5y) | MER |
|---|---|---|---|---|---|---|
| TD Canadian Index, Series I | 14.77% | 11.27% | 1.23% | -9.59% (2018) | -0.73 (-1.05) | 0.66% |
| TD U.S. Index, Series I | 14.99% | 13.78% | 0.42% | -14.63% (2022) | n/a | 0.50% |
| TD International Index, Series I | 9.18% | 6.58% | 1.16% | -8.70% (2022) | -0.96 (-0.53) | 0.61% |
These are among the lowest-cost index funds in the sample, and in each market they kept the most after tax of the index funds available. Fees decided the ranking more than distributions did. Other banks' U.S. index funds look more tax-efficient at first glance, because a higher fee absorbs most of the dividend income before it is distributed, but they kept less in the end: 14.72% and 14.65% against 14.99% since 2021. The Canadian index fund's 1.23-point drag is an upper limit. Morningstar reports its payouts as unsplit income, and this test taxes unsplit income at the full 50.17% rate. The income of a Canadian index fund is mostly Canadian dividends, taxed at 38.33% under refundable Part IV tax, which the corporation recovers when it pays taxable dividends; at that rate the drag would be about 0.9 points and the after-tax return since 2021 about 15.1%.
No index fund in this sample is a corporate class, so all three distribute their income every year; foreign dividends from the U.S. and international funds are taxed at the full 50.17% rate on investment income. Equal weights put a third in Canada, which is far more than Canada's share of world markets; a Canadian and U.S. pair alone kept more over this period (12.65% a year after tax since 2016, against 10.68% with international), but that reflects one decade in which the U.S. led. If the TD investor series is not available on the dealer platform, the Scotia Canadian and U.S. equity index funds (MER 1.00% and 1.06%) are the closest substitutes, 0.1 to 0.3 points a year behind after tax.
Profile 3: All Equity, Smallest Falls
This investor wants to stay fully in equities but sleep through bad years. The screen asked for market sensitivity (beta) of 0.90 or less, no calendar year since 2016 worse than -10%, better results than the category average in down years, and a tax drag of one point or less. Funds that passed were ranked by their five-year Sharpe ratio, which measures return per unit of volatility. One fund was added after the screen: the data set has no volatility figures for the class version of Fidelity Canadian Large Cap, and its trust version failed only on tax drag (2.44 points, from payouts of about 8.8% a year).
| Fund | After tax, since Jan 2021 | After tax, since Jan 2016 | Tax drag per year | Worst calendar year | Volatility / beta, 5y | MER |
|---|---|---|---|---|---|---|
| TD North American Dividend, Series A | 12.82% | 9.79% | 0.61% | -6.79% (2022) | 11.4 / 0.71 | 2.09% |
| Fidelity Dividend Class, Series B | 12.66% | 8.79% | 1.16% | -3.07% (2018) | 10.2 / 0.77 | 2.06% |
| Fidelity Canadian Large Cap Class, Series B | 13.10% | 9.22% | 0.91% | -0.18% (2018) | n/a (trust: 7.3 / 0.31) | 2.25% |
TD North American Dividend had the best five-year Sharpe ratio of every fund that passed the screen, and almost all of its distributions were capital gains, the lightest-taxed kind. Fidelity Dividend Class lost no more than 3.1% in any calendar year since 2016. With its 2021 distributions included, its drag (1.16 points) is now just above the screen's limit, almost all of it refundable Part IV tax on Canadian dividends; Scotia Canadian Equity, which passes every test, is the alternative (in the mix: 10.09% a year after tax since 2016, worst year -2.5%). Canadian Large Cap is the most defensive fund in the sample: its trust version had the lowest volatility (7.3) and market sensitivity (beta 0.31) of all 258 funds, gained 13.6% in 2022, and its worst year since 2016 was -0.2%. In the mix, it replaced Fidelity NorthStar Class and improved every measure: a higher return, a smaller worst year and more kept after tax.
The mix's worst calendar year was -1.2% (2018), against -9.8% for the market mix, and in 2022 it gained 1.7%. The price was return: after tax, 9.36% a year since January 2016 against 10.68%, about 1.3 points a year, and 13.02% against 13.12% since January 2021. Three points need to be explained to a client before using it.
First, Canadian Large Cap is not fully in stocks: Morningstar shows 81% equity and 18.5% fixed income as of August 31, 2026, and part of its calm comes from that sleeve and a deep-value style (price to earnings of 12.6 against 16.0 for the index). Second, it lags strong markets: its trust version ranked in the top 3% of its category in 2018 and 2022, but in the bottom 5% in 2017, 2019 and 2023. Third, the class and trust versions hold the same portfolio and track each other closely in Canadian dollars (both returned 13.6% in 2022). The first version of this page showed a gap between them because the class figures had been read in U.S. dollars. After tax, the class kept more than the trust since 2021 (13.10% against 11.94%) and since 2016 (9.22% against 7.89%), because it distributes far less.
Two of the three funds are from one manager, and the mix leans toward Canada. For global holdings instead, Fidelity NorthStar Class or EdgePoint Global Portfolio can take Canadian Large Cap's place: the mix then kept 8.62% or 9.21% a year after tax since 2016, with a worst year of -5.0%. Calendar years also hide falls within a year; in the March 2020 crash nearly every equity fund dropped far more than its 2020 calendar return shows.
The Three Mixes Side by Side
Equal amounts of each fund, rebalanced each January. After-tax figures use each fund's own yearly after-tax return, as in the main report, and run to October 23, 2026.
| Mix | After tax, since Jan 2021 | After tax, since Jan 2018 | After tax, since Jan 2016 | Worst calendar year | 2026 to date, before tax |
|---|---|---|---|---|---|
| 1. Beat the market | 17.13% | 20.69% | n/a | -24.83% (2022) | 30.13% |
| 2. Match the market | 13.12% | 11.00% | 10.68% | -9.82% (2022) | 12.93% |
| 3. Smallest falls | 13.02% | 10.16% | 9.36% | -1.23% (2018) | 11.09% |
| Reference: Nasdaq index fund alone | 16.12% | 19.48% | 18.11% | -28.55% (2022) | 16.23% |
| Reference: Canadian and U.S. index pair | 15.02% | 12.97% | 12.65% | -10.38% (2022) | 14.15% |
The three profiles behave as intended: more return comes with deeper falls, and the order holds in 2022, the one severe down year in the period. The reference lines are the honest comparison for anyone choosing the first profile. Much of the aggressive mix's advantage over the broad market came from the same large U.S. technology companies the Nasdaq index holds; the two active funds added about one point a year on top of it after tax, with a smaller worst year.
Against Simple ETF Investing
The fair benchmark for any of these mixes is what a corporation would have kept by holding two index ETFs instead: half in an S&P 500 ETF (Vanguard VFV) and half in a TSX ETF (iShares XIC), rebalanced yearly and run through the same corporate tax test. The ETFs cost almost nothing (0.06% to 0.09% a year), but they are not tax-free in a corporation: VFV paid out about 1.3% a year as foreign income and XIC about 3% as Canadian dividends, a drag of about 0.9 points a year. Two ETFs built as corporate classes (Global X HXS and HXT) paid no distributions at all. Every fund on this page is a series with advisor compensation in its MER, so the ETF mix is shown both without advice and with a 1.15% advisory fee.
| Portfolio | After tax, since Jan 2021 | After tax, since Jan 2018 | After tax, since Jan 2016 | Tax drag per year | Worst calendar year |
|---|---|---|---|---|---|
| 50/50 S&P 500 ETF and TSX ETF, no advisory fee | 15.54% | 13.30% | 13.09% | 0.89% | -9.27% (2022) |
| Same, with a 1.15% advisory fee | 14.38% | 12.14% | 11.93% | 0.89% | -10.42% (2022) |
| 50/50 corporate class ETFs (HXS and HXT), no fee | 16.35% | 14.17% | 13.99% | 0.00% | -9.49% (2022) |
| 1. Beat the market | 17.13% | 20.69% | n/a | 0.37% | -24.83% (2022) |
| 2. Match the market | 13.12% | 11.00% | 10.68% | 0.94% | -9.82% (2022) |
| 3. Smallest falls | 13.02% | 10.16% | 9.36% | 0.89% | -1.23% (2018) |
Since January 2021, the ETF pair without advice kept more after tax than the second and third mixes, with or without the advisory fee, and less than the first. Only 11 of the 312 funds with data since 2021 beat it, and four of those were precious metals or resources funds; since 2016, 23 of 263 did. Against the ETF pair with an advisory fee, 29 funds beat it since 2021 and 35 since 2016. Each mix still did its own job better than the ETFs: the first kept 20.7% a year after tax since 2018 against 13.3%, and the third gained 1.7% in 2022 while the ETFs lost 9.3%. The second mix trailed mainly because a third of it is international, which lagged Canada and the U.S. badly in this decade.
One third each in Fidelity Global Innovators Class, Fidelity Canadian Large Cap Class and Fidelity Greater Canada Class (Series B, advisor compensation included), rebalanced each January. What $100,000 became by October 23, 2026, after corporate tax on distributions, depending on the year it was invested.
| Invested in January | Three-fund Fidelity portfolio | ETF pair, no advice | ETF pair with 1.15% advisory fee |
|---|---|---|---|
| 2018 | $420k (17.7% a year) | $301k (13.3%) | $275k (12.1%) |
| 2019 | $430k (20.5%) | $312k (15.7%) | $288k (14.5%) |
| 2020 | $350k (20.2%) | $254k (14.7%) | $237k (13.5%) |
| 2021 | $231k (15.5%) | $232k (15.5%) | $218k (14.4%) |
| 2022 | $201k (15.6%) | $185k (13.6%) | $176k (12.4%) |
| 2023 | $222k (23.3%) | $205k (20.8%) | $198k (19.6%) |
| 2024 | $180k (23.2%) | $176k (22.3%) | $172k (21.2%) |
| 2025 | $141k (20.9%) | $138k (19.6%) | $136k (18.4%) |
The portfolio came out ahead of both ETF versions from every start year except January 2021, when it finished level with the ETF pair without advice (about $700 per $100,000 behind) and about $12,500 ahead of the ETF pair with advice. Most of the lead from the earlier start years comes from 2020, when Global Innovators gained 93% and Greater Canada 53% against about 10% for the ETFs. Year by year, the portfolio beat the ETFs in seven of the nine years, three of them narrowly. Tax before 2021 uses each fund's 2021 to 2025 average, because no split by income type is available for earlier years; 2026 uses the distributions paid so far, including a capital gains payout from Global Innovators. Real accounts bought on other dates and were not rebalanced each January, so a client's own money-weighted return is the accurate test.
Fund Choice and the Small Business Deduction: a $10 Million Example
Distributions cost a corporation twice. They are taxed as investment income, and they count toward the passive income that shrinks the small business deduction. Under the federal rules, which Québec follows for its own small business rate, the business limit of $500,000 falls by $5 for every $1 of adjusted aggregate investment income above $50,000 and is gone at $150,000. Interest, foreign income and dividends from portfolio shares count in full; capital gains count at one half. At 2026 Québec rates, each dollar of lost limit is taxed at 26.5% instead of 12.2%, so a fully lost limit costs up to $71,500 a year (see the SBD grind calculator).
The table applies each portfolio's average distributions for 2021 to 2025 to a $10 million corporate portfolio held by a company with at least $500,000 of active business income. The Fidelity class trio is Global Innovators Class, Canadian Large Cap Class and Greater Canada Class. The high-distribution trio (Fidelity Canadian Large Cap in its trust version, Desjardins Canadian Equity Focused and BMO Global Equity) was chosen from the large list because its return over 2021 to 2025 was close to the Fidelity trio's. Growth is the yearly return before tax since January 2021, applied to $10 million. Net growth subtracts the yearly tax on distributions and the extra tax from the lost small business rate. Tax on gains when positions are eventually sold is not counted, and no refundable tax (RDTOH) is credited.
| $10 million in | Growth per year before tax | Total corporate tax per year | Net growth per year after tax | Passive income per year | Business limit left | Extra tax from lost limit | Tax on distributions |
|---|---|---|---|---|---|---|---|
| Fidelity class trio | $1,602,000 (16.02%) | $95,000 | $1,507,000 (15.07%) | $114,000 (1.14%) | $180,000 | $46,000 | $49,000 |
| High-distribution trio | $1,416,000 (14.16%) | $332,000 | $1,084,000 (10.84%) | $533,000 (5.33%) | $0 | $71,500 | $261,000 |
| ETF pair (VFV, XIC), no advisory fee | $1,639,000 (16.39%) | $161,000 | $1,478,000 (14.78%) | $214,000 (2.14%) | $0 | $71,500 | $89,000 |
| Corporate class ETFs (HXS, HXT), no advisory fee | $1,635,000 (16.35%) | $0 | $1,635,000 (16.35%) | $0 | $500,000 | $0 | $0 |
The high-distribution trio kept about $422,000 a year less than the Fidelity trio. About $185,000 of that is a lower return before tax; the other $237,000 is corporate tax, once the lost small business rate is counted. The extra tax on business income does not show up in any fund's published return. The clearest single case is Fidelity Canadian Large Cap itself: its trust version generated about 5.3% a year of taxable passive income, its corporate class version about 2.2%. Even plain index ETFs remove the whole business limit at this size. The Fidelity trio stays under the $50,000 threshold up to about $4.4 million.
Selling or switching units also creates passive income: half of any realized gain counts in the year of the sale, so corporate class funds and ETFs defer this income rather than remove it, and sales can be spread over several years. Part of the corporate tax comes back later: refundable tax is recovered when the corporation pays taxable dividends, and business income taxed at the general rate allows eligible dividends, which are taxed less in the shareholder's hands. The figures assume the corporation meets Québec's 5,500 paid-hours test and earns at least $500,000 of active business income. The tax treatment of any specific situation should be confirmed with the corporation's accountant.
What This Page Does Not Show
Every fund here was chosen by looking at results that are already known. The same funds will not necessarily lead the next ten years; the persistence report tests how often past leaders kept leading, and found that most did not. The mixes also ignore what matters most for a real client: the corporation's other assets, when the money will be needed, how withdrawals will be paid, and how the investor actually reacts to a 25% fall. Suitability depends on a full review of the investor's situation, and the tax treatment of any strategy should be confirmed with the corporation's accountant.
Methodology and Data Sources
Data: Morningstar Canada, retrieved October 25, 2026: calendar-year returns and category percentile ranks for 2016 to 2025, returns for 2026 to October 23, distributions by type for 2021 to October 2026, and five- and ten-year alpha, beta, R-squared, volatility and Sharpe ratio against each fund's Morningstar benchmark. Same fund universe and tax method as the main report, including its handling of 2021 distributions for funds whose Morningstar history no longer reaches that year.
- Universe: 258 diversified equity funds with at least nine calendar years of history, excluding sector funds and private-wealth series. Series with advisor compensation included in the MER.
- Tax: 2026 Québec corporate rates on investment income. Interest and foreign income 50.17%, Canadian dividends 38.33% refundable Part IV tax, capital gains 25.09% (half taxable), return of capital not taxed. No refunds credited. Income that Morningstar does not split by type is taxed at 50.17%, which overstates the cost for Canadian funds whose income is mostly Canadian dividends. Years before 2021 use each fund's 2021 to 2025 average.
- Windows: annualized from January of the starting year to October 23, 2026 (2026 counts as 0.81 of a year). December 2026 distributions are not yet known, so this year's tax is understated slightly.
- Alpha: Morningstar's alpha from monthly returns against the fund's category benchmark, net of the fund's fees. Funds without published statistics are shown as n/a.
- Mixes: equal weights, rebalanced each January, built from each fund's yearly after-tax return. Mix 1 starts in 2018 because one fund has eight years of history.
- ETF benchmark: calendar returns from Morningstar; 2021 to 2026 distributions from stockanalysis.com and Vanguard Canada press releases (two early-2021 XIC payouts estimated; XIC's September 2026 payout not yet listed). VFV payouts taxed as foreign income, XIC payouts as Canadian dividends. HXS and HXT paid no distributions. Advisory fee variant: 1.15% a year (1% plus GST/QST).
- Small business deduction example: passive income and tax on distributions from average 2021 to 2025 distributions (capital gains at one half), excluding realized gains on sales; growth since January 2021; 2026 Québec and federal rates from the site's rate table (small business 12.2%, general 26.5%).
- Correction (October 25, 2026): for 53 funds, the first version used a duplicate Morningstar record that reports returns in U.S. dollars. Their returns were replaced with the Canadian-dollar returns of the same series; distributions and tax drag were not affected, because both the distributions and the fund value of each record are in the same currency.
- All figures are illustrative only. Assumptions: no withdrawals, no new deposits, distributions reinvested, no advisory fee beyond the MER.
Past performance does not guarantee future results. Up-to-date performance data are available upon request.
Report dated October 25, 2026. Data source: Morningstar Canada.