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Winners, losers plot 2002

Strategies to stay on top, escape cellar: CAROLINE ALPHONSO checks out some of 2001's best, worst funds LAGGARDS

When asked to describe 2001, words like brutal and disastrous keep cropping up among many fund managers.

"Obviously it was an extremely disappointing year," says Trent May, manager of the AIM American Blue Chip Growth Fund.

His fund was among the many dragged down when the tech boom turned turned to bust.

Here's a closer look at three of last year's laggards and how their managers plan to hit the comeback trail:
AIM American Blue
Chip Growth Fund

For Mr. May, 2001 was certainly a flop. The $96.1-million fund lost 46.2 per cent, putting it in last place within the U.S. equity category (excluding U.S.-dollar equivalent funds), which lost an average 11.2 per cent.

Mr. May says he made his biggest mistake early in the year.

Believing that the U.S. economy was in for a "garden-variety economic slowdown" that would turn around once the U.S. Federal Reserve Board stepped in, the manager took money out of health care, reducing his holdings by at least 10 per cent, and put it into technology stocks -- including such favourites as fibre-optics maker JDS Uniphase Corp.and data-storage providerBrocade Communications Systems Inc.

But the slowdown proved to be more than the garden-variety type he'd predicted. Despite the Fed's efforts to shore up the economy, tech stocks kept sliding. The aftermath of the Sept. 11 terrorist attacks did Mr. May's tech stocks no favours, either.

"The mistake we made clearly was mostly a timing mistake," Mr. May says. "That decision [to put more money into tech] was a poor decision."

Still, he's sticking to his guns. "I think adherence to our system was the correct decision despite the mistakes we made on a timing basis," he says.

"Our discipline and remaining true to the growth style, should growth come back in favour, promises to deliver results."

As of Dec. 31, his sector weightings included about 43 per cent in tech, 14 per cent in telecom, 11 per cent in communications and media and nearly 11 per cent in financial services.

Mr. May looks for a healthy first quarter since so much stimulus has been poured into the economy. Last year's decline and depth wasn't typical, he says.

He continues to seek out leaders and companies with strong balance sheets and little to no debt.

"I continue to think we're well-positioned," Mr. May says.
Altamira Capital Growth Fund

In 2000, Ian Joseph, manager of the $209.4-million Altamira Capital Growth Fund, took the prize for the best Canadian equity fund -- thanks to the stunning rise of Nortel Networks Corp.

Last year, however, Mr. Joseph did not have a place on that podium. In fact, with a 30.5-per-cent loss -- versus a 16.3-per-cent decline for the Toronto Stock Exchange-Standard & Poor's 60-stock composite index and a 7-per-cent average shortfall for its peers -- the fund came in dead last in the Canadian large-cap equity group.

Mr. Joseph doesn't want to pin the blame wholly on Nortel's collapse. "It was a contributor, but not the sole contributor," he says.

Instead, the manager says he was hoping for a quick recovery in technology and placed his bets not only on Nortel but other tech and biotech companies, giving a lesser weighting to defensive stocks.

"I think the fund was positioned for a much earlier U.S. recovery" than what actually occurred, Mr. Joseph says. "That was the root cause of the underperformance."

Midway through 2001, Mr. Joseph turned to defensive issues, such as financials and utilities, and cut tech. That strategy likely prevented an even bigger decline.

With many economists forecasting a near recovery, Mr. Joseph has started to sell defensive holdings. "They've done their job."

Currently, industrial products, including tech, make up 21.6 per cent -- up from 9.5 per cent at the end of last October. Consumer products have nearly doubled to 8.4 per cent, and pipelines and utilities are at 4.5 per cent.

While oil and gas made up 15 per cent of his fund as of Oct. 31, Mr. Joseph says he has now cut back to 8 per cent. Extra inventory has plagued the industry, and Mr. Joseph believes it will take some time before demand picks up again.

Meanwhile, he is slowly rebuilding his Nortel holding, now at 4.5 per cent -- double its exposure last fall. "It will fare better this year," Mr. Joseph predicts.

If anything, 2001 has taught Mr. Joseph to act quickly.

"The business of investing in an actively managed fund is to take a view, and . . . if I'm wrong, to correct it as quickly as possible."

He prefers not to look back at a "disastrous" 2001. "Going forward, we're seeing a move toward increased economic activity," which should benefit the fund.
Growth Fund

Had it not been for gold stocks and cyclicals like Stelco Inc., manager Malvin Spooner believes his $7.6-million fund would have fallen even further than it did.

Regardless, Mr. Spooner's fund, heavily invested in technology, fell 66 per cent last year -- and ranked last in the Canadian small-cap equity group.

As of Oct. 31, the fund had 53 per cent in industrial products, 21 per cent in metals and minerals, 20.7 per cent in communications and media, 4.6 per cent in gold and 0.3 per cent in financial services.

When the bear market began, Mr. Spooner says the fund "held in well, much to the surprise of all of us." He credits this to not having high-profile names, like Nortel.

But then the downturn took hold of almost all tech stocks. The Mavrix fund couldn't hide. "Despite the fact that we thought we were owning great companies, it really didn't matter," he says.

But Mr. Spooner is optimistic about a recovery this year. His fund was already showing signs of a turnaround late last year; it was up 3 per cent in December.

His strategy for this year? "There's a rule of thumb for guys like me. If everybody that I talk to owns a stock . . . then I sell it."

He now likes GT Group Telecom Inc., a Toronto-based local exchange carrier, for instance, whose stock sank to $1.80 at the end of last year from more than $18 at the start.

"The secret is to stick to my discipline, which is to own these out-of-favour companies until the rest of the world realizes their merit," Mr. Spooner says.

At the same time, he doesn't give up on the companies that have everything going for them. Mr. Spooner is a big fan of stocks such as auto parts maker Linamar Corp. and Stelco, because they will do well in a low-interest-rate environment, he says.

He advises investors to buy funds that have been among the dogs last year.

"The managers," he says with a chuckle, "are highly motivated, like me."

© 2007 The Globe and Mail. All rights reserved.

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