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Mutual Fund News

Quarter shows strong gains

Funds score best performance in three months ended June 30 since December, 1999


Like many Canadian investors, Kirk Atkinson has been watching his mutual fund holdings sink for the past three years.

But Mr. Atkinson, a part-time lecturer at York University's faculty of political science, is finally looking forward to opening his next statement, after Canadian mutual funds posted their best quarterly performance in the three months ended June 30 since December, 1999.

Mr. Atkinson tracks his portfolio's performance between statements, so he knows his funds are on the upswing.

"They've bounced along with the market," Mr. Atkinson says.

Stock markets around the world posted a stunning rally in the second quarter as the war in Iraq ended and investors looked forward to a rebounding economy.

In the United States, the Standard & Poor's 500-stock index surged 14.9 per cent to post its biggest quarterly gain since the fourth quarter of 1998.

The technology-laden Nasdaq Stock Market jumped 22 per cent in the second quarter, while in Canada, the S&P/TSX composite index added a healthy 10.1 per cent.

Many fund categories posted eye-popping returns in the three months to June 30.

Latin American equity funds raced ahead an average 15.1 per cent, and science and technology funds nipped at their heels with an average 14.5-per-cent gain.

Emerging markets funds advanced an average of 14 per cent and European equity funds were up 12.6 per cent.

Meanwhile, Canadian equity and large-capitalization funds were up an average of 9 per cent.

Even the worst-performing categories were essentially flat, with foreign bond funds edging down a tiny 0.9 per cent and labour-sponsored funds slipping 0.1 per cent.

But many market watchers are predicting that a solid three-month performance in mutual funds will give investors the confidence to begin increasing positions in funds again.

The mutual fund industry has watched money flow out in the form of net redemptions every month this past year, with the exception of February.

Dan Hallett, president and chief executive officer of Windsor, Ont.-based Dan Hallett & Associates Inc., believes that, at the very least, investors are likely feeling calmer as they tear open their statements this month.

"It's discouraging for people to look quarter after quarter and just see things going down and down," he says of the rocky markets over the past three years.

"They don't have to be so afraid to see that envelope in the mail and say 'I don't want to look at it,' " he adds.

But Mr. Hallett cautions that markets may be running ahead of economic fundamentals and therefore be vulnerable to correction. He advises investors to always choose their investments based on the time horizon and goals they have set out for their own portfolios.

Funds that invest in Latin America led the charge in the second quarter with a boost from the hot markets of Brazil and Argentina. The group's average one-year loss narrowed to 1.2 per cent.

Among the top performers in the Latin American equity category, the $4.9-million CIBC Latin American Fund swelled 16.5 per cent, the $4.3-million StrategicNova Latin America advanced 16 per cent and the $4.7-million BMO Latin American rose 14.8 per cent.

The $26.5-million Scotia Latin American Growth increased 14.2 per cent, the $26.6-million Investors Latin American Growth climbed 13.2 per cent, the $17.6-million Fidelity Latin America-A gained 11.4 per cent and the $14.9-million TD Latin American Growth rose 10.9 per cent.

TD fund co-manager Scott Piper of Morgan Stanley Asset Management Inc. says that Latin America's turnaround this year marks a sharp reversal from the region's troubles in 2002.

"Last year was somewhat of a tramautic year for Latin America," Mr. Piper says.

In 2002, Argentina was in financial turmoil after defaulting on its debt, and many feared that Brazil would follow suit.

But Brazil's president, who took office early this year, alleviated investors' worries with his social security and tax reforms.

At the same time, Brazil's high interest rates were attractive to global investors.

"Capital was aggressively searching for yield around the world," Mr. Piper says.

In Argentina, meanwhile, the flight of capital began to slow, money flowed back into the banking system, and economic growth is beating expectations.

In North America, science and technology funds ran up in tandem with the rally in the Nasdaq Stock Market.

Among top players in the category, the $1.6-million GGOF Global Technology Classic Fund soared 29.5 per cent, the $1.7-million StrategicNova USTech Fund jumped 26.3 per cent and the $6.6-million ING Global Communications Fund gained 25.4 per cent.

In Canada, the stock market lagged the gains registered in many parts of the world.

Among Canadian equity funds, the $1.1-million Floyd Growth-Net Fund advanced 25.7 per cent, the $8.3-million Disciplined Leadership Canadian Equity Fund increased 20.2 per cent and the $26.1-million Brandes Canadian Equity Fund added 17.8 per cent.

In the Canadian large-cap equity group, the $1.5-million Mavrix Canadian Strategic Equity Fund gained 17.6 per cent, the $86.6-million McLean Budden Canadian Equity Growth jumped 12.9 per cent, and the $370.9-million O'Shaughnessy Canadian Equity advanced 12.8 per cent.

Mr. Atkinson is feeling more optimistic about the outlook for equities and equity mutual funds, but he is still wary of loading up on new purchases.

"I think the market has turned but there are relative danger zones right now," he says.

"Markets have gotten ahead of themselves."

Best and worst quarterly performers

Ranked by three-month returns to June 30. Excludes all U.S.-dollar-equivalent funds and Canadian and U.S. money-market funds.

Top 15 funds

                                                  Three-    One-

                                   Assets         month     year

Fund                               ($'00)         return    return

Biocapital Biotechnology            $19,870       +40.7%     +8,7%

DeltaOne Energy Fund LP              10,500       +34.6     --

GGOF RSP Global Technology Mutual     4,310       +30.1      +6.9

GGOF Global Technology Classic        1,640       +29.5      +7.6

GGOF Global Technology Mutual         9,580       +29.3      +6.9

AGF Germany Class                    16,270       +29.0     -27.0

StrategicNova USTech                  1,690       +26.3      -0.3

Dynamic Global Precious Metals       17,760       +25.8     +11.5

First Trust DJ Internet Index 99        880       +25.8     +31.5

Floyd Growth-Net                      1,160       +25.7     +12.6

ING Global Communications             6,610       +25.4      +0.1

Brandes Global Small Cap Equity       5,350       +25.3     --

Dynamic Focus Plus Small Business    12,860       +25.3      +5.7

O'Shaughnessy U.S. Growth           109,870       +25.3      -3.5

Dynamic Quebec                        2,900       +25.2     -19.2

Bottom 15 funds

@rgentum U.S. Master Portfolio           $60      -22.6%    -42.1%

University Avenue Canadian               320      -22.2     -62.5

Sprott Hedge LP                      308,730      -22.1     -21.1

University Avenue Growth                 340      -21.4     -39.4

Sprott Hedge LP II                    39,760      -20.8     --

University Avenue US Small Cap           210      -20.3     -23.1

University Avenue World                  640      -19.3     -36.9

Sprott Bull/Bear RSP                  30,790      -19.3     --

@rgentum U.S. Market Neutral port         30      -16.4     -35.6

@rgentum Pooled Mkt Neut. Port           320      -15.6     -32.6

University Avenue Balanced               470      -11.4     -33.8

CMP Fund Corp                         10,510       -9.6     --

Genus U.S. Income                      2,690       -7.4      -8.0

@rgentum Canadian L/S Equity Port        650       -6.6     -19.5

E2 Venture Fund Inc                   11,530       -6.6     -14.1


© 2007 The Globe and Mail. All rights reserved.

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