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Funds the pros would pick

Five experts tell ANGELA BARNES how they would invest their money in five categories

Decision time for registered retirement savings plan is approaching fast.

Many investors will look to mutual funds. To help them make their selections from a bewildering array of funds, we asked five experts for their picks in the following categories -- Canadian equity, foreign equity, Canadian bond, Canadian balanced and, for the first time this year, to pick a sector or regional fund.

Dan Hallett

President,

Dan Hallett & Associates Inc.

For his Canadian equity choice, Mr. Hallett has chosen, for a second year, CI Canadian Investment Fund because of its strong discipline and "fairly heavy value tilt."

The Brandes Global Equity Fund got his nod in the foreign fund class because of the depth of its management team, the strong value orientation in the stock selection and the fund's consistent long-term record.

Like a number of other fund watchers, he feels investors are better off buying bonds directly, rather than going for a bond fund, as returns on the funds are reduced by the management-expense ratio. But one bond fund he does like is the Phillips Hager & North Total Return Bond Fund because of its low fees and the flexibility in its investment policy.

And for the second consecutive year, Mr. Hallett selected the Mawer Canadian Balanced RSP Fund from the balanced fund category. Its fees are low at just over 1 per cent. Also, "it has been an excellent performer" and has "a terrific management team," he said. He declined to make a sector choice.

Gordon Pape

Co-author, 2004 Buyer's

Guide to Mutual Funds

Mr. Pape selected the RBC O'Shaughnessy Canadian Equity Fund as his Canadian equity fund pick. It "combines a value/growth style blend that has produced great results," Mr. Pape said.

In the foreign fund category, he opted for the Mackenzie Cundill Value Fund. It gained an average 15.7 per cent annually over the past five years, which contrasts with the average 0.2 per cent loss for the foreign category over the same period, he noted. Manager "Peter Cundill's deep-value style worked to perfection," he said.

TD Canadian Bond Fund did well last year with a return of 7.7 per cent and has shown above-average returns over all longer-term time frames, he said.

In the balanced fund group, Mr. Pape selected the Dynamic FocusPlus Balanced Fund. The fund's "returns are much better than the category average over all time frames," he added.

Mr. Pape opted for a sector pick in the labour-sponsored fund category, a group that has had more than its fair share of troubles in the past few years. But then, Front Street Energy Growth Fund, run by high-profile managers Frank Mersch and Normand Lamarche, did dramatically better than its peers last year, earning 18 per cent in 2003, he noted.

Levi Folk

President and managing editor,

Fundlibrary.com

Levi Folk describes BMO Dividend Fund as a "safe choice after a year of strong market gains and overstretched valuations." The Canadian equity fund, run by veteran manager Michael Stanley, invests in Canadian companies with strong balance sheets and its focus is on income generation, he notes.

Mr. Folk favours Phillips Hager & North Canadian Bond Fund in the bond category because of its strong risk/return profile and its low management expense ratio.

He likes the Saxon Balanced Fund, which has an aggressive 70/30 split between stocks and bonds, because it has one of the best tradeoffs between risk and potential reward in the balanced fund class. The fund has been a consistently strong performer.

For his global pick, he likes Templeton Global Small Companies Fund because of its worldwide diversification. That gives investors a reach beyond the U.S. market and defended them last year against the declining U.S. dollar.

For his sector/regional pick, Mr. Folk went for a precious metals fund -- Dynamic Global Precious Metals Fund. The fund has one of the best prospects this year among funds in its sector, despite having posted a 71-per-cent return last year, he said.

James Kedzierski

Editor, Canadian Mutual

Fund Adviser

The RBC O'Shaughnessy Canadian Equity Fund also got the nod from James Kedzierski, who says the fund's two-pronged approach to the market -- combining a growth approach with a value strategy -- has done well in the past and should put it in a good position to continue its winning ways.

Mr. Kedzierski feels that investors are better off holding fixed-income investments such as bonds and guaranteed investment certificates directly, but if he had to choose a fund in that category, it would be TD Canadian Bond Fund. "In eight of the past 10 years, the fund has been a top-quartile performer in the category," he said.

Mr. Kedzierski is even less a fan of balanced funds. He feels investors opting for a balanced fund lose control of the division of assets in their portfolios between stocks, bonds and cash. Still for those wishing to go that route, he recommends Saxon Balanced Fund, which he describes as a well-rounded fund with "a nice mix of small-, medium- and large-cap stocks, as well as high-quality Canadian government and corporate bonds."

He is currently unenthusiastic about global equity funds, "because many of them have exposure to the U.S. market, which looks relatively unattractive due to the weak greenback and high stock valuations." However, he does like Mawer World Investment Fund, which has performed in the top half of its group in eight of the past 10 years.

"We think emerging market equities may turn out to be among the world's strongest performing stocks, not only this year, but for several years to come," Mr. Kedzierski said. He particularly likes the prospects for the Asian market, which, led by China, is rapidly becoming an economic powerhouse; so he selected Clarington Asia Pacific Fund.

Jennifer Gilbert

Associate director of mutual funds,

Scotia Capital Inc.

Ms. Gilbert feels that strong bottom-up stock selection will be even more important than ever this year.

With that in mind, she selected the AIM Canadian First Class Fund. Manager Roger Mortimer's success lies in spotting inaccurate stock valuations, she said. The fund has a "very positive" risk/reward profile, she added.

Trimark Canadian Bond Fund has provided a steady record of top-quartile performance while offering a conservative approach to the fixed-income market, she said.

"With muted expectations for the bond market this year, portfolio managers Rex Chong and Vince Hunt's management strategy will likely continue to work well," she added. She continues to be impressed by the team of managers at Fidelity Canadian Balanced Fund, which is her pick in that category.

The Capital Investment Global Equity Fund was No. 1 on her list for foreign equity funds.

Capital International Asset Management (Canada) uses a multi-manager system in running its funds, which brings a mix of investment styles to each of its funds.

"With most of the world focused on China, an overlooked and somewhat contrarian idea to look at is Europe," Ms. Gilbert said.

Her choice therefore in the sector/regional category is AGF European Equity Fund. The fund has performed well in the past few years and should continue to do so this year when stock selection is key, she said.

© 2007 The Globe and Mail. All rights reserved.

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