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Investors spooked by downturn searching for safer fund options


The recent stock market turmoil has sparked jitters among investors, and some are now seeking safer havens in their mutual fund portfolios.

Peter Loach, a vice-president and managing director of fund research at BMO Nesbitt Burns Inc., has received more calls recently from brokers seeking advice for clients.

One broker, who has a 74-year-old male client, was wondering yesterday if it was okay to switch him from the CI Global Equity Fund into the CI Harbour Foreign Equity, Mr. Loach said in an interview.

"Because the CI Harbour Foreign Equity has a high cash cushion, and is diversified with a focus on value instead of growth, that move is completely justifiable," he said.

"Historically, value provides more downside protection than growth funds" because the managers are buying cheaper stocks whose value has not been recognized by the market, Mr. Loach said.

The fund analyst said his top picks among global value funds are Brandes Global Equity and also Mackenzie Cundill Value Fund (C series), which focuses on buying deep-value or beaten-up stocks and now has "north of 26 per cent in cash."

Among Canadian stock funds, he likes Dynamic Canadian Value Fund, and Brandes Sionna Canadian Equity Fund run by Kim Shannon.

Ms. Shannon, who joined Brandes Investment Partners & Co. this year after leaving CI Financial Income Fund, has a strong track record as a value manager even though she has run her current fund for less than a year. "She pays attention to not overpaying for stocks," Mr. Loach said.

Morningstar Canada fund analyst Mark Chow said the market turbulence could be a "wake-up call" for investors who have heavy exposure to smaller company or resource funds that have done well.

In case the volatility turns into more of a bear market, it might be time to take some profits or shift some money into less risky funds, he said.

Mr. Chow said he likes Trimark Canadian Endeavour Fund, which focuses on buying growth stocks at reasonable prices. "They look at companies that have been beaten up a bit ... or they feel there is less room for the stock to fall."

He also favours CI Signature Select Canadian Fund run by Eric Bushell because the manager will shift between value and growth-oriented stocks, is permitted to build a large cash position if necessary and can invest up to 50 per cent in foreign stocks.

Among foreign equity funds, he suggests Mackenzie Cundill Value Fund and Trimark Fund. The latter "won't have the big resource exposure that is whipsawing the markets right now," Mr. Chow said.

Dan Hallett, a Windsor, Ont.-based fund analyst, said the best protection from market volatility is building a portfolio that is highly diversified in terms of asset classes - like stocks, bonds and cash.

If investors feel safer with funds holding a higher-than-normal cash position, he likes Cundill Canadian Security Fund, which has about 20 per cent in cash, and also Chou Associates Fund, which is carrying about 41 per cent in cash.

Raynor Burke, a vice-president of investment funds at National Bank Financial Inc., said he would still recommend growth funds like Dynamic Power Canadian Growth in the current market.

A lot of high-quality growth companies have been showing pretty decent earnings, but they haven't been reflected in their stocks, said the fund analyst. "The [value-oriented] CI Harbour Fund provides an option for conservative investors."

Analysts' fund picks for volatile times

Value funds are favourites, but some growth-oriented funds are showing up as well.

Name Last MER reported dateMERAsset class1-year return3-year return5-year return10-year return
Dynamic Power Canadian Growth12/29/20063.09Canadian Focused Small/Mid Cap Equity33.45%29.70%21.32%12.98%
Chou Associates12/29/20061.74Global Small/Mid Cap Equity11.09%12.15%11.45%12.78%
Mackenzie Cundill Cdn Security 'A'6/30/20062.14Canadian Focused Equity18.94%11.59%11.31%11.66%
Trimark Fund - SC7/31/20071.61Global Equity26.11%9.39%7.44%8.25%
Trimark Canadian Endeavour7/31/20072.12Canadian Focused Equity24.00%11.78%12.64%8.26%
CI Harbour7/31/20072.35Canadian Focused Equity18.51%19.77%13.71%10.93%
CI Signature Select Canadian7/31/20072.35Canadian Focused Equity22.83%20.41%15.13%
Mackenzie Cundill Value Class6/30/20062.54Global Equity14.66%10.66%10.95%
Dynamic Canadian Value Class12/29/20063.71Canadian Focused Equity23.76%29.73%23.64%
Brandes Global Equity7/31/20072.7Global Equity18.76%6.52%
Brandes Sionna Canadian Equity*Canadian Equity

*The fund does not have a one-year track record yet.

© 2007 The Globe and Mail. All rights reserved.

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