WHAT WE'RE LOOKING FOR
Mutual funds that zig when the stock markets zag. Last week, we scouted for funds that looked and performed like the major stock indexes (closet index funds, in other words). This time, we want funds that are run by managers who steer a course that is independent of the index.
We've once again gathered up all the funds in the main Canadian equity categories and applied a statistical measure to them called R-squared (we're using three-year numbers). The lower the R-squared number for these funds, the less their returns can be explained by what's happening with the S&P/TSX composite index.
SO WHAT DID WE TURN UP?
A harsh truth, which is that it's hard to be an independent-minded fund manager in a bull market. Notice the quartile rankings for low R-squared funds on our list. Almost all of them are third or fourth quartile over the past three years, which tells you they're below average (first and second quartile would be above average).
The explanation here has to do with the way in which Canadian equity managers typically buck the index these days. It's all about commodities - the index is almost 45 per cent made up of energy, mining and gold stocks, but funds with low R-squared numbers tend to have little or none. Take Trimark Canadian Endeavour as an example. According to the update most recently filed with Globefund.com, commodity stocks have only a trace presence in the portfolio.
Why have so many managers made a decision to avoid commodities stocks, which have powered the S&P/TSX composite index to average annual gains of 20.7 per cent on a total-return basis (including dividends) over the past three years? Often, it's a reluctance to invest in a sector that is cyclical, or prone to alternating periods of boom and bust. As hot as commodities have been in recent years, they will eventually cool. When that happens, funds with a low R-squared number may be a refuge.
|Funds least correlated to the index|
|As of Oct 2007||Last||Oct 2007||3-yr|
|Fund name||Fund category||(000s)||MER date||MER||R-squared||perform.|
|Beutel Goodman Canadian Intrinsic||Canadian Focused Equity||2,374||28-Sep-07||1.43||23.54||3|
|Cote 100 Premier||Canadian Equity||28-Sep-07||2.50||25.36||4|
|Diamond North American Value||Canadian Focused Equity||4,865||31-Oct-05||3.37||30.00||4|
|Trimark Canadian Endeavour||Canadian Focused Equity||1,665,624||31-Oct-07||2.12||32.50||4|
|AIC Dividend Income||Canadian Focused Equity||288,615||29-Dec-06||2.45||32.72||4|
|Mackenzie Ivy Canadian||Canadian Focused Equity||3,585,905||30-Jun-06||2.40||35.44||4|
|Mackenzie Ivy Canadian Class||Canadian Focused Equity||63,473||30-Jun-06||2.51||35.66||4|
|AIC Canadian Focused||Canadian Focused Equity||601,734||29-Dec-06||2.47||36.19||4|
|Mackenzie Univ Canadian Growth||Canadian Focused Equity||1,073,705||30-Jun-06||2.40||36.64||3|
|AIC Canadian Focused Corporate Cl||Canadian Focused Equity||70,683||29-Dec-06||2.45||36.74||4|
|Mackenzie Cundill Cdn Sec Cl||Canadian Focused Equity||101,453||30-Jun-06||2.51||37.20||4|
|Mackenzie Univ Cdn Growth Class||Canadian Focused Equity||19,964||30-Jun-06||2.52||37.54||3|
|Mackenzie STAR Cdn Max Equ Growth||Canadian Focused Equity||4,058||29-Jun-07||2.71||41.81||4|
|Mackenzie Maxxum Dividend Growth||Canadian Focused Equity||1,433,790||30-Jun-06||2.41||44.17||4|
|AIC Diversified Canada Corp Class||Canadian Focused Equity||55,259||29-Dec-06||2.45||44.70||4|
|Cote 100 Canadian Equity||Canadian Equity||28-Sep-07||2.20||44.74||4|
|Mackenzie Maxxum Canadian Value||Canadian Focused Equity||269,196||30-Jun-06||2.41||44.81||4|
|AIC Advantage||Canadian Focused Equity||1,100,887||29-Dec-06||2.47||45.36||2|
|Mackenzie Maxxum Cdn Val Class||Canadian Focused Equity||3,097||30-Jun-06||2.53||45.45||4|
|AIC Advantage II||Canadian Focused Equity||794,320||29-Dec-06||2.73||45.66||2|
|AIC Diversified Canada||Canadian Focused Equity||1,411,134||29-Dec-06||2.47||46.03||4|
|Mackenzie Maxxum Dividend||Canadian Focused Equity||1,667,347||30-Jun-06||2.41||46.35||4|
|Quadrus Mac Mxm Dividend||Canadian Focused Equity||416,613||30-Jun-06||2.42||46.35||4|
|AIC Advantage II Corp Class||Canadian Focused Equity||63,263||29-Dec-06||2.73||46.41||2|
|Trimark Canadian - SC||Canadian Equity||994,292||31-Oct-07||1.64||46.43||4|
|Mackenzie Maxxum Dividend Class||Canadian Focused Equity||170,356||30-Jun-06||2.49||46.52||4|
© 2007 The Globe and Mail. All rights reserved.
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