Managed Money Reporter Newsletter — Issue 182, April 2002


Editors: Carl Spiess & Allan McGlade


Featured Articles



The Best Performing Fund Families

They say good genes run in families, and when it comes to Mutual Fund Families, the same can be said. It seems that there are a number of fund families within which the majority of funds have above average returns.

While it is impossible to say that one fund family is better than another, the following research may help to explain why we often favour fund families like Trimark, Templeton, Fidelity and Mackenzie.  It also explains why they are some of the largest fund families in Canada.

Below, you will find research on which fund families have below average, average or above average funds.  You can quickly conclude that if you hold Trimark or Templeton funds, they are likely to be above average funds.  But note that what really matters is the performance of the particular fund you are holding.  A relatively new fund company worth watching is Northwest Funds.  Their name comes from the concept that you want your funds to be in the Northwest quadrant, eg. lower risk, higher return.  A fund family with a high number of above average funds is an advantage to you, because you could switch to any number of other good performing funds in that family at no charge.

Just because you hold funds from a group that is lower on the list, does not mean you should be concerned.  For example, Synergy Canadian Style management fund continues to be on our recommended list, and in fact, half of the funds from Synergy and Strategic Nova are average performers (eg. three stars).

Fund families are grouped by similar names (even though for example AIM & Trimark are both owned by AMVESCAP)

Bellcharts Morningstar Rankings
Fund Family * ** *** **** ***** % Average Performers in Family

Ranked
Below Avg

Ranked
Above Avg
Above Avg as % Of Total Total # Average or Above Avg
Trimark 0 0 2 10 7 11% 0 : 17 89% 100%
Templeton 0 1 4 11 1 24% 1 : 12 71% 94%
Northwest 0 2 0 4 0 0% 2 : 4 67% 67%
Fidelity 0 1 5 6 5 29% 1 : 11 65% 94%
Clarington 1 1 2 4 3 18% 2 : 7 64% 82%
Mackenzie 3 7 18 16 10 33% 10 : 26 48% 81%
GGOF 1 10 8 9 1 28% 11 : 10 34% 62%
AGF 3 9 11 8 4 31% 12 : 12 34% 66%
Maxxum 0 1 5 2 1 56% 1 : 3 33% 89%
CI 5 24 22 14 10 29% 29 : 24 32% 61%
Scotia 1 5 7 5 1 37% 6 : 6 32% 68%
Talvest 1 5 7 6 0 37% 6 : 6 32% 68%
Royal 0 4 16 6 3 55% 4 : 9 31% 86%
Elliott & Page 1 5 3 2 2 23% 6 : 4 31% 54%
TD 3 9 54 21 8 57% 12 : 29 31% 87%
Altamira 1 10 13 6 3 39% 11 : 9 27% 67%
Dynamic 3 7 15 7 0 47% 10 : 7 22% 69%
Spectrum 1 5 19 6 1 59% 6 : 7 22% 81%
AIC 7 11 10 5 2 29% 18 : 7 20% 49%
AIM 3 7 10 2 2 42% 10 : 4 17% 58%
BPI 0 1 4 1 0 67% 1 : 1 17% 83%
Ethical 1 3 3 1 0 38% 4 : 1 13% 50%
Synergy 0 3 4 1 0 50% 3 : 1 13% 63%
Strategic Nova 3 6 11 1 1 50% 9 : 2 9% 59%
Notes:

Only funds with 3 year rankings will have Bellcharts / Morningstar rankings

Based on Feb 28, 2002 data, on the most popular funds available through ScotiaMcLeod

We will continue to recommend funds based on a wide variety of factors.  These include the overall performance of the fund family, the historical performance of the fund itself, whether managers have recently joined or left the fund, the fund's risk profile, its tax attributes, and how it is positioned to maximize future growth.

Survivor Bias

There is one factor to keep in mind when looking at long term performance, which is known as survivor bias. Simply said the better performing funds are rarely eliminated. Very poor performing funds, will generally fail to attract new assets and may then be closed or changed. And over time, when funds are merged within families, due to redundancy, changes in management or other reasons, generally the fund that is closed is the lower performing fund, and the fund that the assets are consolidated into will remain, with its better track record.

An exception to this was the recent change to Global Strategy Income Plus fund. It was generally a 3 or 4 star performing fund on Bellcharts/Morningstar, but was merged into the 2 star AGF Canadian Balanced fund. (The AGF Canadian Balanced fund is the oldest fund in Canada, with an inception date of 1931, which likely had something to do with which fund record to keep.) However, since that fund is now managed by a new Manager Christine Hughes, it should only be judged by its 3 year performance which has been good. See the links below for more information:

What To Do About Low Interest Rates

This last week (April 2002), the prime rate jumped 1/4%, the first such increase for several years.  However, short term rates remain at near 40 year lows.  It is interesting to note, though, that while longer term bond rates, eg. on 10 year bonds, are actually higher right now than they were four, three and one years ago, they have basically sat within a band between 5% and 6% for quite some time.


Source: www.bankofcanada.ca/

While rising long term rates can hurt the performance of bond funds, or stripped bonds, we see little evidence that long term rates will rise by any significant amount, despite the increases in short rates that seem inevitable.

One item to consider, is the real return on your bonds.  That is, the nominal rate less the inflation rate, or the real rate of growth of your money and purchasing power.  Over the last ten years there have been real return bonds (RRBs) available.  As shown, these currently offer 3.5% real growth on your investment, and are available with terms up to 20 years.  If inflation stays at 2.5%, they yield 6%, but if inflation goes back to 10% the RRBs would yield 13.5%.  They are possibly the lowest risk investments available in Canada.

So it is important to distinguish between short and long term rates.  A bond fund will ladder maturities in their portfolio to take advantage of the higher rates on the longer bonds.  You can also have a laddered set of bonds in your own investment portfolio, and as each bond comes due, it can be rolled into a new, higher rate long term bond.  Please contact us for a review on the current yields of your bonds or bond funds.

AGF International Value Fund Update

As you may have read, the high profile manager Charles Brandes has departed from AGF.

In late March, Brandes Investment Partners, one of AGF's sub-advisors, terminated their relationship in favour of establishing their own mutual fund company in Canada. Since 1994, Brandes has managed several funds for AGF, namely the AGF International Value Fund, AGF RSP International Value Fund, AGF International Stock Class, and AGF Emerging Markets Value Fund. For the next few months, the funds will continue to be managed by Brandes and subsequently a new manager will be appointed. 

In light of these events, we have placed the AGF International Value Fund and AGF International Stock Class Fund under review. We will continue to monitor the situation closely and will assess our recommendations after a new manager has been identified and we have had the opportunity to assess them and their capabilities. In the meantime, we are recommending that clients in these funds continue to hold until they have appointed the new managers.

Here are some links with more information: 
www.fundmonitor.com Research Report 
www.investmentexecutive.com Industry News (Brandes departs from AGF)
www.investmentexecutive.com Industry News (Brandes' own firm)

In other news, Mackenzie has made a move to end its relationship with Scudder. The decision was made partially due to the fact that there was excess management and an overlap in some funds. Mackenzie began their relationship with Scudder when they merged with Maxxum in October 2001. We will keep you informed as to any new developments and will advise you of any recommended changes if you are a holder of these funds.

Reviewing Trimark Commentary from March 2000

Earlier in this issue, we identified that Trimark is one of the families with consistently good performing funds. However, this did not seem to be the case 2 years ago. In April of 2000, the internet bubble as it is now known, was at its peak. Trimark's largest value funds were looking like laggards next to the B2B and e-commerce funds that were proliferating. Still we published: 

The "new" economic paradigm– How real is it? With the byline: We recently have been receiving analysis that suggests that technology stocks are overvalued. Here is a particularly good article from Trimark.

The full article is at: www.mutualfundreporter.com/articles/2000_issues/mfr157.htm#article1

It is interesting to look at the subsequent performance of the two stocks, the boring old economy Grainger and the exciting (at the time) Commerce One, an internet B2B portal.


Source Globefund, 2 year performance of Grainger and Commerce One to March 31, 2002.

While the initial performance of the two stocks made us wonder if logic would ever prevail, the longer-term trend seems clear now. And Grainger has been a major holding in the Trimark funds over the last two years.  Click here for a complete listing of Trimark's recent fund performance.

Of course, a contrarian would be wise to look at the unloved growth funds today, as these things do move in cycles. Or even better, holding a balance of growth and value type funds, could be the wisest decision of all.

Mutual Fund Reporter Recommended Website of the Month 

Visit the Municipal Property Assessment Corporation site to find out your home's appraised Value (for personal use only).

 



Contact Us

T.  416.863.RRSP (7777)
     1.800.387.9273
F.  416.863.7479
E. carl.spiess@scotiawealth.com
    allan.mcglade@scotiawealth.com

ScotiaMcLeod is a division of Scotia Capital Inc., member of CIPF.

Security | Privacy Policy | Legal Information | Important Information | Site Map

 

 

 

® Registered trademark of The Bank of Nova Scotia, used under licence. ™ Trademark of The Bank of Nova Scotia, used under licence. Scotia Wealth Management™ consists of a range of financial services provided by The Bank of Nova Scotia (Scotiabank®); The Bank of Nova Scotia Trust Company (Scotiatrust®); Private Investment Counsel, a service of 1832 Asset Management L.P.; 1832 Asset Management U.S. Inc.; Scotia Wealth Insurance Services Inc.; and ScotiaMcLeod®, a division of Scotia Capital Inc. ("SCI"). Wealth advisory and brokerage services are provided by ScotiaMcLeod, a division of SCI. Insurance services are provided by Scotia Wealth Insurance Services Inc., the insurance subsidiary of SCI. When discussing life insurance products, ScotiaMcLeod advisors are acting as Life Underwriters (Financial Security Advisors in Québec) representing Scotia Wealth Insurance Services Inc. SCI is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.

The Spiess McGlade Team is a personal trade name of Carl Spiess and Allan McGlade.