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Trimark worth considering despite red-hot year

There's a lesson for all you last-minute RRSP investors in the superb returns generated lately by Trimark mutual funds.

I know how your minds work. Already some of you are thinking, hey, Carrick's recommending Trimark because it's hot. That would be incorrect. The lesson is not to buy Trimark today because it's doing great, but rather to watch for opportunities like the one presented a couple of years ago when this venerable fund brand was in purgatory.

Generally speaking, one of the dumbest things you can do as an investor is to choose a mutual fund coming off a huge year for your registered retirement savings plan. Blowout years are often followed by cold ones, which means you could be slipping a time bomb into your RRSP.

This advice is all the more pertinent in 2007 because we've reached a turning point for Canadian investors. The energy stocks that helped power many a Canadian equity fund to strong gains in recent years have stalled, while global markets are delivering strong gains and seem to have the best growth potential.

The sort of fund that can prosper right now is the sort of fund you'll find in the Trimark lineup at AIM Funds Management. These funds avoided the oil boom, and even the Canadian equity names have a lot of foreign content in them. Today, these funds are surging.

The Trimark Fund made 27 per cent in 2006, compared with an average 16.5 per cent for global equity funds. Already this year, it's up another 8.3 per cent. Trimark Canadian Endeavour made 19.3 per cent last year while the average peer fund made 14.5 per cent.

A couple of years ago, investors were fleeing these funds because their returns were lame. "They stunk up the group," said Mark Chow, senior fund analyst at Morningstar Canada.

Take the Trimark Fund, for example. The widely held SC version of this fund (low ownership fees, but you may have to pay an upfront service charge to buy it) had a three-year run from 2003 to 2005 where its returns lagged the average fund in the global equity category by a few percentage points.

Such is life with Trimark funds. Oil and metals stocks were on a tear during this period and Trimark managers tend not to be bandwagon jumpers. "That's the Trimark way," Mr. Chow said. "They tend to be contrarians. If we saw them really outperforming during a time like that, we would do a double-take."

Today, Trimark funds are flying thanks to stocks such as Power Corp., Zimmer Holdings and Onex Corp., all of which have broken out in the past year after a period in the doldrums. Trimark bought them cheap and held them while investors fixated on resource stocks. Now, Trimark funds are profiting, and so are unitholders who stuck by the company.

Unfortunately, many Trimark clients responded to the company's troubles by doing what investors often do when a fund firm falters -- they sold. That's why assets in the Trimark Fund SC have fallen to current levels around $2.9-billion from $3.3-billion three years ago, even while the fund has been on fire lately.

What investors should have been doing is accumulating Trimark funds by making periodic purchases. Sure, it seems like a gamble to throw money at a disappointing fund. But if you've got a solid case for investing in a fund in the first place, then adding money during a slump is merely an opportunity to buy low.

Take Trimark Income Growth SC, for example. Its very reasonable management expense ratio of 1.63 per cent undercuts the average in the Canadian income balanced category by a whopping 0.7 percentage points, its 15-year compound average annual return of 10.4 per cent beats the category average by more than 2 percentage points and the fund never lost money during the bear market that began this decade. Given all this, the correct response to this fund's rotten 2005 was to buy.

The recent surge by Trimark funds raises a question: Is it too late to buy in? You know the rule about buying hot funds, but there's arguably an exception to be made here. Trimark funds are well positioned if energy stocks keep losing power, and the Canadian funds in the lineup have lots of foreign content. A quick example: Trimark Canadian Endeavour had about 40 per cent of its assets invested in the United States, Britain and other countries as of Jan. 31.

Another point is that Trimark funds are often a pretty good place to be in the sort of down market that we haven't seen in a while. In the utterly wretched year of 2002, the Trimark Fund lost 5.6 per cent while the average global equity fund plunged 19.2 per cent.

Still, it's worth emphasizing that smart investing is about identifying quality and buying it when it's on sale. This is the exact opposite of the buy-high, sell-low mentality of so many investors.

© 2007 The Globe and Mail. All rights reserved.

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