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Mutual Fund News

RBC adds two funds to series


TORONTO -- Royal Bank of Canada is betting Jim O'Shaughnessy, the $5-billion fund manager, can do it again.

This month, the bank's mutual fund arm is adding two more names to the O'Shaughnessy series of mutual funds. Strong returns delivered through a unique computer-driven investment model have pushed the popular New York-based fund manager's assets under management to more than $5.2-billion in Canada.

The new RBC O'Shaughnessy All-Canadian Equity Fund is a close cousin to the $2.1-billion RBC O'Shaughnessy Canadian Equity Fund, closed to investors last year. The new fund hopes to emulate the returns of the 10-year-old Canadian equity fund -- an average of 11.9 per cent annually since its inception -- but will invest in a largely different basket of securities with a portfolio overlap of about 30 per cent.

The fund manager describes the new RBC O'Shaughnessy Global Equity Fund as "one of our coolest funds ever." The fund can invest across all regions, including a maximum 20-per-cent weighting in emerging markets. In contrast, the $1.2-billion RBC O'Shaughnessy International Equity Fund does not hold U.S., Canadian or emerging market stocks.

Mr. O'Shaughnessy's methodology uses a concept he calls "strategy indexing," that is, being fully invested, holding a portfolio of 50 stocks that best meet his criteria and rebalancing once a year. The best 50 equities are bought and, a year later, the model run again.

In general, the four O'Shaughnessy funds have outperformed in bear markets, kept pace in bull runs and lagged when speculation has moved share prices. At present, the global funds are underweight Canada and the U.S. markets and overweight Europe; the Canadian equity fund, meanwhile, is underweight pricey financials and energy stocks.

"He definitely seems to have mastered his style of investing," said Raynor Burke, head of fund research at National Bank Financial Inc. in Toronto. "Everything he has touched has done very well for RBC. . . . I don't think you will find too many fund managers betting against him."

A handful of money managers are following in Mr. O'Shaughnessy's footsteps, using computers to take the emotion out of stock-picking. Vancouver's Van Arbor Asset Management Ltd. oversees about $10-million in three funds that use computer models to make buy and sell decisions. In November, AGF Management Ltd. acquired control of High Street Asset Management Inc. and is expected to launch a retail fund using a quantitative process. AGF declined to comment.

Mr. O'Shaughnessy is skeptical about the competition.

"We have demonstrated now for 10 years that we walk the walk," he said. "There's a slew of new quant [quantitative] products coming out and I have to smile. Where have these guys been for the last 10 years? Are these managers going to be able to demonstrate the ability not to deviate? It's the hardest thing in the world to do."

© 2007 The Globe and Mail. All rights reserved.

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