by Gordon Pape
Some good-looking new funds that are beating the bear.
Even as money flows out of mutual funds, companies are continuing to launch new products to attract your dollars. Some of these newcomers aim at capitalizing on current investor demands, such as the scramble for higher yields. These are the industrys latest flavour of the month funds. Five years from now, they may be about as attractive as Latin American or Emerging Markets funds are today. But a few appear to have real staying power and are worth a closer look.
Every year we identify several of these Promising Newcomers in Gordon Papes Buyers Guide to Mutual Funds, which is co-authored by Prof. Eric Kirzner of the Rotman School of Management, University of Toronto. These are funds that dont have the three-year record necessary to qualify for a formal rating, but which we believe are potential new stars.
The 2003 Buyers Guide will be in bookstores soon, or you can order a copy now through this site at 25% off (see the Bookstore specials on our Home Page). But here is a sneak preview of three of the outstanding new kids on the block.
Acuity All-Cap 30 Canadian Equity Fund. We have been very disappointed with the performance of most of the Acuity funds. Their equity funds have been dreadful for the most part, which is a shame because this company operates one of the few socially-responsible fund lines in Canada under the name Clean Environment. However, even the most dedicated social activist would think twice before putting money into Acuity Clean Environment Equity Fund, which has lost an average of almost 8% annually for the past three years (to Sept. 30) or Acuity Clean Environment Global Equity Fund, has dropped more than 19% a year over the same period. The new All-Cap 30 Fund has the same management team but does not operate under the Clean Environment mandate, which focuses on environmentally-friendly stocks. So lead manager Ian Ihnatowycz and his group have more flexibility here. The strategy is to provide long-term growth by investing in a diversified portfolio of up to 30 Canadian and foreign stocks selected as the best from the Acuity universe of eligible stocks. Right now that includes a diverse mix of Canadian companies such as Alcan, Teck Cominco, and Biovail, to which is added promising U.S. entries like Bed Bath & Beyond. Its still early, but the fund has an intriguing portfolio strategy and is off to a promising start with a one-year gain of 8.4%, well above average for the Canadian Equity category.
AIC American Focused Fund. Like Acuity, most of the AIC equity funds have had a rough ride recently. Thats more surprising in this case, because AIC specializes in value investing in the Warren Buffett tradition and many other value funds have fared reasonably well despite the bear market. However, this new AIC fund appears to have a lot of promise. It was launched in the fall of 1999, under the direction of Larry Sarbit, who ran the Investors U.S. Growth Fund with great success for many years. In true AIC fashion, he employs Buffett's classic approach to stock selection . The portfolio is ultra- conservative in nature, making this a good choice for low-risk investors. What do we mean by ultra-conservative? Well, consider this: at the end of September, over 93% of the portfolio was in cash and short-term securities. In essence, this isnt a stock fund right now; its a money market fund with a few equity holdings. Sarbit doesnt like the tone of the markets so hes staying on the sidelines, protecting investors capital in the process. As a result, this fund showed a one-year loss of only 4.9% to the end of September, mainly as a result of currency exchange fluctuations. This was during a time when the average U.S. equity fund was shedding 19.6%. Sarbit wont remain in cash forever, of course, and his previous success with the Investors Group fund shows he can pick winning stocks with the best of them. If you have money with AIC, this looks like a fund for the future.
Dynamic Focus Plus Diversified Income Trust. Several new income trusts funds have been launched in the past couple of years. They may only be a passing fad, but I have to bring this one to your attention nonetheless because it was the number one performer in the category over the past year, by a wide margin. Its run by canny old Ned Goodman, who has been around the investment industry for almost 40 years and knows how to pick winners with the best of them. The fund invests in a portfolio of royalty trusts and REITs and so far has rewarded investors both with capital gains and steady income. Distributions are paid monthly, and over the year to Sept. 30 shareholders received $0.956 per unit. That represents a cash-on-cash yield of 8.2% based on the recent NAV of $11.72. Total return for the latest 12 months was 31.5%, more than double the average for the Income Trusts category. Funds like this will be highly vulnerable when interest rates begin to rise again but for now, enjoy.
Adapted from an article that originally appeared in Mutual Funds Update, a monthly newsletter that provides advice on fund selection and strategies. For subscription information and to read a sample copy Click Here