WHAT ARE WE LOOKING FOR?
Index-beating U.S. equity funds, which are said to be a rare breed.
Simple - we just screened all funds in the U.S. equity category to see which beat the 3.6-per-cent annual return of the S&P 500 in Canadian-dollar terms for the five years to Aug. 31 (that's a total return, including dividends). The funds are presented in order of their five-year compound average annual returns, and just for fun we've noted their beta. That's a risk measure comparing volatility to the appropriate benchmark stock index, in this case the S&P 500. The index has a beta of one and funds on either side of that threshold are said to have either lower or greater volatility.
SO WHAT DID WE TURN UP?
Globefund.com lists 123 U.S. equity funds with a five-year history - of those, 39 were index beaters over that period, or just under one-third. Several index funds made the list, but not just any index funds.
With the soaring Canadian dollar reducing the value of assets denominated in U.S. dollars in recent years, currency-neutral index funds have fared the best. By protecting against currency fluctuations through the use of hedging, these funds ideally deliver what the underlying index makes, minus fees. Note that the S&P 500 in U.S.-dollar terms has made about 12 per cent annually over the past five years with dividends reinvested.
Currency-neutral funds seem to have an additional advantage over unhedged funds - a lower beta. It looks as if converting S&P 500 returns into Canadian-dollar terms adds an extra level of volatility that currency-neutral funds remove. RBC O'Shaughnessy U.S. Value, a reliable long-term performer with a comparatively low beta, is a user of currency hedging.
Dynamic Power American Growth does not use hedging, so its index-beating numbers are all the more impressive. Note: This fund has been available in a currency-neutral version for the past two years, and it has outperformed.
(As of Aug. 2007)
|Net Assets||Last MER||5 year||5 year|
|Name||($-millions)||reported date||MER||return (%)||BETA|
|Dynamic Power American Growth||201.0||12/29/2006||4.34||12.38%||0.96465|
|SEI U.S. Large Cap Synthetic-O||112.8||8/31/2007||0.14||11.42%||0.76366|
|TD U.S. Index Currency Neutral-I||133.3||8/31/2007||0.85||10.82%||0.76649|
|Altamira Precision US Curr Neutral||117.6||8/31/2007||0.53||10.81%||0.76211|
|RBC U.S. Index Currency Neutral||368.3||8/31/2007||0.7||10.74%||0.75145|
|RBC O'Shaughnessy U.S. Value||1,432.3||8/31/2007||1.57||10.25%||0.69532|
|NWQ U.S. Large Cap Value||99.9||12/31/2002||2.21||8.11%||1.0063|
|Dynamic American Value||157.4||12/29/2006||2.69||8.02%||0.91367|
|BMO U.S. Equity Index||153.7||8/31/2007||1.22||7.64%||0.81685|
|CI American Managers Corp Class||336.6||8/31/2007||2.34||6.74%||0.69241|
|IA Clarington Navellier US All Cap||48.0||8/31/2007||2.87||6.54%||0.62627|
|CI American Value Corporate Class||349.1||8/31/2007||2.34||6.28%||0.66696|
|United-US Equity Diversif Pool Cl W||37.1||8/31/2007||0.21||6.23%||0.95403|
|CI Synergy American||315.6||8/31/2007||2.34||5.41%||0.49762|
|iShares CDN S&P 500 Index||571.3||8/31/2007||0.15||5.35%||0.92928|
|Integra U.S. Value Growth||68.8||12/31/2002||2.49||5.29%||0.86024|
|CI American Small Companies||452.4||8/31/2007||2.34||5.21%||0.67492|
|imaxx US Equity Growth||3.7||8/31/2007||2.85||5.03%||0.94606|
|McLean Budden American Equity||754.5||3/31/2004||1.25||4.79%||1.07691|
|PH&N U.S. Growth-A||577.7||8/31/2007||1.25||4.74%||1.07478|
|CI American Equity||386.0||8/31/2007||2.34||4.70%||0.98083|
Check out Globefund.com's fund profiles. They compare a mutual fund's returns against both the appropriate stock or bond benchmark and the average return for funds in the same category.
© 2007 The Globe and Mail. All rights reserved.
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