Here's a buyer beware warning for investors who plan to consult the 1999 mutual fund rating guides that have just landed in bookstores.
Publishing deadlines being what they are, these books went to press as usual with data that goes up to the early summer and no later.
Remember what happened after that? The third quarter of the year turned into a rout on the stock markets and equity mutual funds were slaughtered. The market rallied somewhat in the fall, but fund performance numbers still look awful in many cases.
Unfortunately, this is barely apparent in the mutual fund books. While some books have squeezed in references to the market upheaval, most of their fund analysis has been done from the sunnier perspective of the early summer.
This isn't to say the books are fatally flawed and you should save your $20 or so. Most analyze and rank funds by many criteria, performance being just one.
But if you're looking for an idea of how a fund protected investor capital through some of the worst market conditions in years, you'll be disappointed. As well, you'll have to screen out performance numbers that in some cases are massively skewed to the good.
A good example can be seen in the writeup on the $1.38-billion Spectrum United Canadian Equity Fund in Gordon Pape's 1999 Buyer's Guide to Mutual Funds.
Mr. Pape writes: "The fund gained 12.4 per cent over the year to June 30/98 and posted an average annual compound rate of return of 13.9 per cent over five years. This is a very sound choice for any equity fund investor."
The Spectrum United Canadian Equity Fund is highly regarded generally, not just by Mr. Pape, and it may well be a solid choice today. But if you factored the book's performance numbers into your decision on whether to buy it, you were working with information that is way out of date.
As of Oct. 30, the fund was down 11.8 per cent for the previous 12-month period and had a five-year record of 8.7 per cent.
That's actually a relatively good performance, but there's no context to show this. The average Canadian equity fund fell 14.1 per cent in the 12 months to Oct. 30, while the average gain for the five-year period was 7.1 per cent.
Sometimes, a great fund story is hidden by the time limitations faced by fund book authors.
In Top Funds 1999, the writers mention the safety orientation of the $5.38-billion Ivy Canadian Fund. That's old information. What's new is that this fund was battle-tested in the late summer and came through it like it was armour-plated. For the year ended Oct. 30, it beat all but 10 of its peer funds with a gain of 3.9 per cent.
People reading the fund books for suggestions on small-capitalization funds should be especially careful. The category was hit very hard during the market decline, so much so that some funds will likely have their worst year yet in 1998.
In Chand's World of Mutual Funds,author Ranga Chand lists the worst one-year return for the $88.8-million Bissett Small Cap Fund at a loss of 8.6 per cent in 1994. But for the 12 months to Oct. 31, this fund dropped 34 per cent.
Top Funds 1999 tells readers the Bissett fund gained 51 per cent in 1996 and 113 per cent in 1993, home runs that have come at the cost of a 3-per-cent loss for the first six months of 1998 and a 9-per-cent fall in 1994. Another of the book's top small-cap choices, the $25.5-million Millennium Next Generation Fund,is listed with a worst-ever loss of 5.9 per cent in 1994. It's down 23.6 per cent in the year to Oct. 31.
Performance numbers aren't everything in fund selection, of course. But if you had your eye on the Bissett or Millennium funds, wouldn't you want to see something about the extra dimension of risk suggested by their setbacks in the second half of this year?
If you regularly consult mutual funds rating books, you need not give up on them simply because of this year's information gap. Just be ready to do the supplementary research that the authors would have done if they were able. You should do this in any year, more so in this one.
The best place to go for current data is the World Wide Web. Many fund books have allied Web sites, so check there first. The most involved site appears to be the one connected with Duff Young's FundMonitor 1999,while the sites for Mr. Chand's book and Top Funds are not operational yet.
There are also several good independent fund research sites on the Web. Look for a list of these sites in the Personal Finance column next Saturday.
If you don't have Web access, ask your financial adviser or broker for numbers and commentary on how funds handled this year's adversity. Up-to-date performance numbers can be found in the special mutual fund section The Globe and Mail publishes on the third Thursday of the month.
Have you ever agonized over the burden you're putting on the local landfill site by throwing out expired credit cards? Me neither. And yet Canada Trust is making a big deal of the fact that its new Friends of the Environment MasterCards are biodegradable.
Canada Trust will donate a percentage of the total annual amount spent on the regular and gold cards to the Friends of the Environment Foundation Canada Fund. But you had to read way down on a press release issued this week to find out that people will be able to contribute to a good cause while getting themselves into debt.
Much more prominent was the news that Canada Trust was launching the country's first biodegradable credit cards. The cards are made of a plant-based substance called Biopol and are like any other cards except that they will break down in the presence of moisture, salt water or soil. Better keep them away from the kids.
Hope you savers and conservative investors enjoyed the upward spike in interest rates in the late summer and early fall because it's over now. ING Direct's investment savings account now pays 4.2 per cent, down from 4.75 per cent two months ago, while mutual fund company Altamira Investment Services Inc. now pays 4.5 per cent on its Cash Performer daily interest savings account, down from 5 per cent. One-year guaranteed investment certificates are down to the area of 3.65 per cent from 4.75 per cent.
Comments and suggestions are welcomed at rcarrick@globeandmail.ca